Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ

Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ

Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o

Indicate by check mark whether the registrant submitted
electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to
submit and post such
files). Yes þ No o

Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(229.405 of this chapter) is not contained herein, and will not
be contained, to the best of registrants knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. þ

Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). Yes o No þ

The aggregate market value of the voting common stock of ConAgra
Foods, Inc. held by non-affiliates on November 27, 2009
(the last business day of the Registrants most recently
completed second fiscal quarter) was approximately
$9,826,639,222 based upon the closing sale price on the New York
Stock Exchange on such date.

At June 27, 2010, 442,764,069 common shares were
outstanding.

Documents incorporated by reference are listed on page 1.

Documents Incorporated by Reference

Portions of the Registrants definitive Proxy Statement for
the Registrants 2010 Annual Meeting of Stockholders (the
2010 Proxy Statement) are incorporated into
Part III.

ConAgra Foods, Inc. (ConAgra Foods,
Company, we, us, or
our) is one of North Americas leading food
companies, with brands in 96% of Americas households.
ConAgra Foods also has a strong
business-to-business
presence, supplying frozen potato and sweet potato products, as
well as other vegetable, spice, and grain products to a variety
of well-known restaurants, foodservice operators, and commercial
customers.

ConAgra Foods is focused on growing sales, expanding profit
margins, and improving returns on capital over time. To that
end, we have significantly changed our portfolio of businesses
over a number of years, focusing on branded, value-added
opportunities, while divesting commodity-based and lower-margin
businesses. Executing this strategy has involved the acquisition
over time of a number of brands such as
Banquet®,
Chef
Boyardee®,
PAM®,
and
Alexia®,
and more recently, has focused on product innovations such as
Healthy
Choice®
Café
Steamerstm,
Healthy
Choice®
Fresh
Mixerstm,
Healthy
Choice®
All Natural Entrées, Marie
Callenders®
Pasta Al Dente, and others. More notable divestitures have
included a trading and merchandising business, packaged meat
operations, a poultry business, beef and pork businesses, and
various other businesses. For more information about our more
recent acquisitions and divestitures, see
Acquisitions and Divestitures below.

As part of this strategy, we have also prioritized improving our
overall operational effectiveness, focusing on better innovation
and marketing programs, reducing manufacturing and selling,
general, and administrative costs, and enhancing our business
processes, which are intended to drive profitable sales growth,
expand profit margins, and improve returns on capital.

Currently we are focusing on the following initiatives, designed
to enhance the performance of our five strategic product groups:
convenient meals, potatoes, snacks, meal enhancers, and
specialty businesses:

Reducing costs throughout the supply chain and the general and
administrative functions; and



Delivering consistent customer service and high standards of
food safety and quality.

We were initially incorporated as a Nebraska corporation in 1919
and were reincorporated as a Delaware corporation in December
1975.

b)

Financial
Information about Reporting Segments

We report our operations in two reporting segments: Consumer
Foods and Commercial Foods. The contributions of each reporting
segment to net sales, operating profit, and the identifiable
assets are set forth in Note 22 Business Segments
and Related Information to the consolidated financial
statements.

c)

Narrative
Description of Business

We compete throughout the food industry and focus on adding
value for customers who operate in the retail food, foodservice,
and ingredients channels.

Our operations, including our reporting segments, are described
below. Our locations, including distribution facilities, within
each reporting segment, are described in Item 2.

The Consumer Foods reporting segment includes branded, private
label, and customized food products, which are sold in various
retail and foodservice channels, principally in North America.
The products include a variety of categories (meals,
entrées, condiments, sides, snacks, and desserts) across
frozen, refrigerated, and shelf-stable temperature classes.

The Commercial Foods reporting segment includes commercially
branded foods and ingredients, which are sold principally to
foodservice, food manufacturing, and industrial customers. The
segments primary products include: specialty potato
products, milled grain ingredients, a variety of vegetable
products, seasonings, blends, and flavors which are sold under
brands such as ConAgra
Mills®,
Lamb
Weston®,
and
Spicetec®.

In June 2010, subsequent to the end of our fiscal 2010, we
acquired the assets of American Pie, LLC, a manufacturer of
frozen fruit pies, thaw and serve pies, fruit cobblers, and pie
crusts under the licensed Marie
Callenders®
and Claim
Jumper®
trade names, as well as frozen dinners, pot pies, and appetizers
under the Claim
Jumper®
trade name. This business is included in the Consumer Foods
segment.

On April 12, 2010, we acquired Elan Nutrition, Inc.
(Elan), a privately held formulator and manufacturer
of snack and nutrition bars. This business is included in the
Consumer Foods segment.

During fiscal 2009, we acquired Saroni Sugar & Rice,
Inc., a distribution company included in the Commercial Foods
segment.

Also during fiscal 2009, we acquired a 49.99% interest in Lamb
Weston BSW, LLC (Lamb Weston BSW or the
venture), a potato processing joint venture with
Ochoa Ag Unlimited Foods, Inc. (Ochoa). This venture
is considered a variable interest entity for which we are the
primary beneficiary and is consolidated in our financial
statements. This business is included in the Commercial Foods
segment.

During fiscal 2008, we acquired:



Alexia Foods, Inc. (Alexia Foods), a privately held
natural food company, headquartered in Long Island City, New
York. Alexia Foods offers premium natural and organic food items
including potato products, appetizers, and artisan breads. This
business is included in the Commercial Foods segment.



Lincoln Snacks Holding Company, Inc. (Lincoln
Snacks), a privately held company located in Lincoln,
Nebraska. Lincoln Snacks offers a variety of snack food brands
and private label products. This business is included in the
Consumer Foods segment.



The manufacturing assets of Twin City Foods, Inc. (Twin
City Foods), a potato processing business. This business
is included in the Commercial Foods segment.



Watts Brothers, a privately held group which owns and operates
agricultural and farming businesses. This business is included
in the Commercial Foods segment.

In July 2010, subsequent to the end of our fiscal 2010, we
completed the sale of substantially all of the assets of
Gilroy Foods &
Flavorstm
dehydrated garlic, onion, capsicum and Controlled
Moisturetm,
GardenFrost®,
Redi-Madetm,
and fresh vegetable operations for $250 million in cash,
subject to final working capital adjustments. We reflected the
results of these operations as discontinued operations for all
periods presented. The assets and liabilities of the
discontinued Gilroy Foods &
Flavorstm
dehydrated vegetable business have been reclassified as assets
and liabilities held for sale within our consolidated balance
sheets for all periods presented.

In the first quarter of fiscal 2010, we completed the
divestiture of the
Fernandos®
foodservice brand. We reflected the results of these operations
as discontinued operations for all periods presented. The assets
and liabilities of the divested
Fernandos®
business have been reclassified as assets and liabilities held
for sale within our consolidated balance sheets for all periods
prior to the divestiture.

During fiscal 2009, we completed the sale of our
Pemmican®
beef jerky business. Due to our continuing involvement with the
business through providing sales and distribution support to the
buyer, the results of operations of the
Pemmican®
business have not been reclassified as discontinued operations.

During fiscal 2009, we completed the sale of our trading and
merchandising operations (previously principally reported as the
Trading and Merchandising segment). We reflected the results of
these operations as discontinued operations for all periods
presented. The assets and liabilities of the divested trading
and merchandising operations are classified as assets and
liabilities held for sale within our consolidated balance sheets
for all periods prior to divestiture.

During fiscal 2008, we completed the divestiture of the
Knotts Berry
Farm®
(Knotts) operations. We reflected the results
of these operations as discontinued operations for all periods
presented. The assets and liabilities of the divested
Knotts business are classified as assets and liabilities
held for sale within our consolidated balance sheets for all
periods prior to divestiture.

ConAgra Foods is a food company that operates in many sectors of
the food industry, with a significant focus on the sale of
branded and value-added consumer products. We also manufacture
and sell private label products. We use many different raw
materials, the bulk of which are commodities. The prices paid
for raw materials used in our products generally reflect factors
such as weather, commodity market fluctuations, currency
fluctuations, tariffs, and the effects of governmental
agricultural programs. Although the prices of raw materials can
be expected to fluctuate as a result of these factors, we
believe such raw materials to be in adequate supply and
generally available from numerous sources. We have faced
increased costs for many of our significant raw materials,
packaging, and energy inputs. We seek to mitigate the higher
input costs through productivity and pricing initiatives, and
through the use of derivative instruments used to economically
hedge a portion of forecasted future consumption.

We experience intense competition for sales of our principal
products in our major markets. Our products compete with widely
advertised, well-known, branded products, as well as private
label and customized products. Some of our competitors are
larger and have greater resources than we have. We compete
primarily on the basis of quality, value, customer service,
brand recognition, and brand loyalty.

We employ processes at our principal manufacturing locations
that emphasize applied research and technical services directed
at product improvement and quality control. In addition, we
conduct research activities related to the development of new
products. Research and development expense was $78 million,
$78 million, and $67 million in fiscal 2010, 2009, and
2008, respectively.

Demand for certain of our products may be influenced by
holidays, changes in seasons, or other annual events.

We manufacture primarily for stock and fill customer orders from
finished goods inventories. While at any given time there may be
some backlog of orders, such backlog is not material in respect
to annual net sales, and the changes of backlog orders from time
to time are not significant.

5

Our trademarks are of material importance to our business and
are protected by registration or other means in the United
States and most other markets where the related products are
sold. Some of our products are sold under brands that have been
licensed from others. We also actively develop and maintain a
portfolio of patents, although no single patent is considered
material to the business as a whole. We have proprietary trade
secrets, technology, know-how, processes, and other intellectual
property rights that are not registered.

Many of our facilities and products are subject to various laws
and regulations administered by the United States Department of
Agriculture, the Federal Food and Drug Administration, the
Occupational Safety and Health Administration, and other
federal, state, local, and foreign governmental agencies
relating to the quality and safety of products, sanitation,
safety and health matters, and environmental control. We believe
that we comply with such laws and regulations in all material
respects, and that continued compliance with such regulations
will not have a material effect upon capital expenditures,
earnings, or our competitive position.

Our largest customer, Wal-Mart Stores, Inc. and its affiliates,
accounted for approximately 18%, 17%, and 15% of consolidated
net sales for fiscal 2010, 2009, and 2008, respectively.

At May 30, 2010, ConAgra Foods and its subsidiaries had
approximately 24,400 employees, primarily in the United
States. Approximately 53% of our employees are parties to
collective bargaining agreements. Of the employees subject to
collective bargaining agreements, approximately 25% are parties
to collective bargaining agreements that are scheduled to expire
during fiscal 2011. We believe that our relationships with
employees and their representative organizations are good.

The foregoing executive officers have held the specified
positions with ConAgra Foods for the past five years, except as
follows:

Gary M. Rodkin joined ConAgra Foods as Chief Executive Officer
in October 2005. Prior to joining ConAgra Foods, he was Chairman
and Chief Executive Officer of PepsiCo Beverages and Foods North
America (a division of PepsiCo, Inc., a global snacks and
beverages company) from February 2003 to June 2005. He was named
President and Chief Executive Officer of PepsiCo Beverages and
Foods North America in 2002. Prior to that, he was President and
Chief Executive Officer of Pepsi-Cola North America from 1999 to
2002, and President of Tropicana North America from 1995 to 1998.

John F. Gehring has served ConAgra Foods as Executive Vice
President, Chief Financial Officer since January 2009.
Mr. Gehring joined ConAgra Foods as Vice President of
Internal Audit in 2002, became Senior Vice President in 2003,
and most recently served as Senior Vice President and Corporate
Controller from July 2004 to January 2009. He served as ConAgra
Foods interim Chief Financial Officer from October 2006 to
November 2006. Prior to joining ConAgra Foods, Mr. Gehring
was a partner at Ernst & Young LLP (an accounting
firm) from 1997 to 2001.

Colleen R. Batcheler joined ConAgra Foods in June 2006 as Vice
President, Chief Securities Counsel and Assistant Corporate
Secretary. In September 2006, she was appointed Corporate
Secretary, in February 2008, she

6

was named Senior Vice President, General Counsel and Corporate
Secretary, and in September 2009, she was named Executive Vice
President, General Counsel and Corporate Secretary. From 2003
until joining ConAgra Foods, Ms. Batcheler was Vice
President and Corporate Secretary of Albertsons, Inc. (a
retail food and drug chain).

André J. Hawaux joined ConAgra Foods in November 2006 as
Executive Vice President, Chief Financial Officer. Prior to
joining ConAgra Foods, Mr. Hawaux served as Senior Vice
President, Worldwide Strategy & Corporate Development,
PepsiAmericas, Inc. (a manufacturer and distributor of a broad
portfolio of beverage products) from May 2005. Previously, from
2000 until May 2005, Mr. Hawaux served as Vice President
and Chief Financial Officer for Pepsi-Cola North America (a
division of PepsiCo, Inc.).

Patrick D. Linehan has served ConAgra Foods as Senior Vice
President, Corporate Controller since January 2009.
Mr. Linehan joined ConAgra Foods in August 1999 and held
various positions of increasing responsibility, including
Director, Financial Reporting, Vice President, Assistant
Corporate Controller, and most recently as Vice President,
Finance from September 2006 until January 2009. Mr. Linehan
briefly left ConAgra Foods to serve as Controller of a financial
institution in April 2006 and returned to ConAgra Foods in
September 2006. Prior to joining ConAgra Foods, Mr. Linehan
was with Deloitte LLP (an accounting firm).

Scott E. Messel joined ConAgra Foods in August 2001 as Vice
President and Treasurer, and in July 2004 was named to his
current position.

Robert F. Sharpe, Jr. has served ConAgra Foods as Executive
Vice President, Chief Administrative Officer and President,
Commercial Foods since October of 2009. Previously, he served
ConAgra Foods as Executive Vice President, External Affairs and
President, Commercial Foods from June 2008 until October 2009;
Executive Vice President, Legal and Regulatory Affairs from
November 2005 to December 2005; and Executive Vice President,
Legal and External Affairs from December 2005 to May 2008. He
also served as Corporate Secretary from May 2006 until September
2006. From 2002 until joining ConAgra Foods, he was a partner at
the Brunswick Group LLC (an international financial public
relations firm).

OTHER
SENIOR OFFICERS OF THE REGISTRANT AS OF JULY 22, 2010

Name

Title & Capacity

Age

Albert D. Bolles

Executive Vice President, Research, Quality & Innovation

52

Douglas A. Knudsen

President, ConAgra Foods Sales

55

Gregory L. Smith

Executive Vice President, Supply Chain

46

Joan K. Chow

Executive Vice President, Chief Marketing Officer

50

Allen J. Cooper

Vice President, Internal Audit

46

Nicole B. Theophilus

Senior Vice President, Human Resources

40

Albert D. Bolles joined ConAgra Foods in March 2006 as Executive
Vice President, Research & Development, and Quality.
He was named to his current position in June 2007. Prior to
joining the Company, he was Senior Vice President, Worldwide
Research and Development for PepsiCo Beverages and Foods from
2002 to 2006. From 1993 to 2002, he was Senior Vice President,
Global Technology and Quality for Tropicana Products
Incorporated.

Douglas A. Knudsen joined ConAgra Foods in 1977. He was named to
his current position in May 2006. He previously served the
Company as President, Retail Sales Development from 2003 to
2006, President, Retail Sales from 2001 to 2003, and President,
Grocery Product Sales from 1995 to 2001.

Gregory L. Smith joined ConAgra Foods in August 2001 as Vice
President, Manufacturing. He previously served the Company as
President, Grocery Foods Group, Executive Vice President,
Operations, Grocery Foods Group, and Senior Vice President,
Supply Chain. He was named to his current position in December
2007. Prior to joining ConAgra Foods, he served as Vice
President, Supply Chain for United Signature Foods from 1999 to
2001 and Vice President for VDK Frozen Foods from 1996 to 1999.
Before that, he was with The Quaker Oats Company for eleven
years in various operations, supply chain, and marketing
positions.

Joan K. Chow joined ConAgra Foods in February 2007 as Executive
Vice President, Chief Marketing Officer. Prior to joining
ConAgra Foods, she served Sears Holding Corporation (retailing)
as Senior Vice President and Chief Marketing Officer, Sears
Retail from July 2005 until January 2007 and as Vice President,
Marketing Services

7

from April 2005 until July 2005. From 2002 until April 2005,
Ms. Chow served Sears, Roebuck and Co. as Vice President,
Home Services Marketing.

Allen J. Cooper joined ConAgra Foods in March 2003 and has held
various finance and internal audit leadership positions with the
Company, including Director, Internal Audit from 2003 until
2005; Vice President, Finance from 2005 until 2006; Vice
President, Supply Chain Finance from 2006 until 2007; Senior
Director, Finance; and most recently as Senior Director,
Internal Audit. He was named to his current position in February
2009. Prior to joining the Company, he was with
Ernst & Young LLP (an accounting firm).

Nicole B. Theophilus joined ConAgra Foods in April 2006 as Vice
President, Chief Employment Counsel. In 2008, in addition to her
legal duties, she assumed the role of Vice President, Human
Resources for Commercial Foods. In November 2009, she was named
to her current position. Prior to joining ConAgra Foods, she was
an attorney and partner with Blackwell Sanders Peper Martin LLP
(a law firm) from 1999 until 2006.

d)

Foreign
Operations

Foreign operations information is set forth in Note 22
Business Segments and Related Information to
the consolidated financial statements.

e)

Available
Information

We make available, free of charge through the Company
Information-Investor Information link on our Internet web
site at
http://www.conagrafoods.com,
our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and amendments to those reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as soon as reasonably practicable after such material is
electronically filed with or furnished to the Securities and
Exchange Commission. We use our Internet website, through the
Company Information-Investor Information link, as a
channel for routine distribution of important information,
including news releases, analyst presentations, and financial
information.

We have also posted on our website our (1) Corporate
Governance Principles, (2) Code of Conduct, (3) Code
of Ethics for Senior Corporate Officers, and (4) Charters
for the Audit Committee, Nominating and Governance Committee,
and Human Resources Committee. Shareholders may also obtain
copies of these items at no charge by writing to: Corporate
Secretary, ConAgra Foods, Inc., One ConAgra Drive, Omaha, NE,
68102-5001.

8

ITEM 1A.

RISK
FACTORS

The following risks and uncertainties could affect our operating
results and should be considered in evaluating us. While we
believe we have identified and discussed below the key risk
factors affecting our business, there may be additional risks
and uncertainties that are not presently known or that are not
currently believed to be significant that may adversely affect
our business, performance, or financial condition in the future.

Our business and results of operations may be adversely affected
by changes in national or global economic conditions, including
inflation, interest rates, availability of capital markets,
consumer spending rates, energy availability and costs
(including fuel surcharges), and the effects of governmental
initiatives to manage economic conditions.

The continued volatility in financial markets and the
deterioration of national and global economic conditions could
impact our business and operations in a variety of ways,
including as follows:



consumers may shift purchases to lower-priced private label or
other value offerings or may forego certain purchases altogether
during economic downturns, which may adversely affect the
results of our Consumer Foods operations;

it may become more costly or difficult to obtain debt or equity
financing to fund operations or investment opportunities, or to
refinance our debt in the future, in each case on terms and
within a time period acceptable to us; and



a downgrade to our credit ratings would increase our borrowing
costs and could make it more difficult for us to satisfy our
short-term and longer-term borrowing needs.

We use many different commodities such as wheat, corn, oats,
soybeans, beef, pork, poultry, and energy. Commodities are
subject to price volatility caused by commodity market
fluctuations, supply and demand, currency fluctuations, and
changes in governmental agricultural programs. Commodity price
increases will result in increases in raw material costs and
operating costs. We may not be able to increase our product
prices and achieve cost savings that fully offset these
increased costs; and increasing prices may result in reduced
sales volume and profitability. We have experience in hedging
against commodity price increases; however, these practices and
experience reduce, but do not eliminate, the risk of negative
profit impacts from commodity price increases.

The food industry is highly competitive, and increased
competition can reduce our sales due to loss of market share or
the need to reduce prices to respond to competitive and customer
pressures. Competitive pressures also may restrict our ability
to increase prices, including in response to commodity and other
cost increases. In most product categories, we compete not only
with other widely advertised branded products, but also with
generic and private label products that are generally sold at
lower prices. A strong competitive response from one or more of
our competitors to our marketplace efforts, or a consumer shift
towards private label offerings, could result in us reducing
pricing, increasing marketing or other expenditures, or losing
market share. Our profits could decrease if a reduction in
prices or increased costs are not counterbalanced with increased
sales volume.

Many of our customers, such as supermarkets, warehouse clubs,
and food distributors, have consolidated in recent years and
consolidation is expected to continue. These consolidations and
the growth of supercenters have produced large, sophisticated
customers with increased buying power and negotiating strength
who are more capable of resisting price increases and operating
with reduced inventories. These customers may also in the future
use more of their shelf space, currently used for our products,
for their private label products. We continue to implement
initiatives to counteract these pressures. However, if the
larger size of these customers results in additional negotiating
strength
and/or
increased private label competition, our profitability could
decline.

Consumer preferences evolve over time and the success of our
food products depends on our ability to identify the tastes and
dietary habits of consumers and to offer products that appeal to
their preferences, including concerns of consumers regarding
health and wellness, obesity, product attributes, and
ingredients. Introduction of new products and product extensions
requires significant development and marketing investment. If
our products fail to meet consumer preference, or we fail to
introduce new and improved products on a timely basis, then the
return on that investment will be less than anticipated and our
strategy to grow sales and profits with investments in marketing
and innovation will be less successful. Similarly, demand for
our products could be affected by consumer concerns regarding
the health effects of ingredients such as sodium, trans fats,
sugar, processed wheat, or other product ingredients or
attributes.

Our success depends in part on our ability to achieve the
appropriate cost structure and operate efficiently in the highly
competitive food industry, particularly in an environment of
volatile input costs. We continue to implement profit-enhancing
initiatives that impact our supply chain and general and
administrative functions. These initiatives are focused on
cost-saving opportunities in procurement, manufacturing,
logistics, and customer service, as well as general and
administrative overhead levels. If we do not continue to
effectively manage costs and achieve additional efficiencies,
our competitiveness and our profitability could decrease.

We sell food products for human consumption, which involves
risks such as product contamination or spoilage, product
tampering, and other adulteration of food products. We may be
subject to liability if the consumption of any of our products
causes injury, illness, or death. In addition, we will
voluntarily recall products in the event of contamination or
damage. We have issued recalls and have from time to time been
and currently are involved in lawsuits relating to our food
products. A significant product liability judgment or a
widespread product recall may negatively impact our sales and
profitability for a period of time depending on product
availability, competitive reaction, and consumer attitudes. Even
if a product liability claim is unsuccessful or is not fully
pursued, the negative publicity surrounding any assertion that
our products caused illness or injury could adversely affect our
reputation with existing and potential customers and our
corporate and brand image.

Our facilities and products are subject to many laws and
regulations administered by the United States Department of
Agriculture, the Federal Food and Drug Administration, the
Occupational Safety and Health Administration, and other
federal, state, local, and foreign governmental agencies
relating to the processing, packaging, storage, distribution,
advertising, labeling, quality, and safety of food products, the
health and safety of our employees, and the protection of the
environment. Our failure to comply with applicable laws and
regulations could subject us to lawsuits, administrative
penalties and injunctive relief, civil remedies, including
fines,

10

injunctions, and recalls of our products. Our operations are
also subject to extensive and increasingly stringent regulations
administered by the Environmental Protection Agency, which
pertain to the discharge of materials into the environment and
the handling and disposition of wastes. Failure to comply with
these regulations can have serious consequences, including civil
and administrative penalties and negative publicity. Changes in
applicable laws or regulations or evolving interpretations
thereof, including increased government regulations to limit
carbon dioxide and other greenhouse gas emissions as a result of
concern over climate change, may result in increased compliance
costs, capital expenditures, and other financial obligations for
us, which could affect our profitability or impede the
production or distribution of our products, which could affect
our net operating revenues.

Each year we engage in billions of dollars of transactions with
our customers and vendors. Because the amount of dollars
involved is so significant, our information technology resources
must provide connections among our marketing, sales,
manufacturing, logistics, customer service, and accounting
functions. If we do not allocate and effectively manage the
resources necessary to build and sustain the proper technology
infrastructure and to maintain the related automated and manual
control processes, we could be subject to billing and collection
errors, business disruptions, or damage resulting from security
breaches. We began implementing new financial and operational
information technology systems in fiscal 2008 and placed systems
into production during fiscal 2008, 2009, and 2010. Additional
changes and enhancements will be placed into production at
various times in fiscal 2011. If future implementation problems
are encountered, our results of operations could be negatively
impacted.

ITEM 1B.

UNRESOLVED
STAFF COMMENTS

None.

ITEM 2.

PROPERTIES

Our headquarters are located in Omaha, Nebraska. In addition,
certain shared service centers are located in Omaha, Nebraska,
including a product development facility, supply chain center,
business services center, and an information technology center.
The general offices and location of principal operations are set
forth in the following summary of our locations. We also lease
many sales offices mainly in the United States.

We maintain a number of stand-alone distribution facilities. In
addition, there is warehouse space available at substantially
all of our manufacturing facilities.

Utilization of manufacturing capacity varies by manufacturing
plant based upon the type of products assigned and the level of
demand for those products. Management believes that our
manufacturing and processing plants are well maintained and are
generally adequate to support the current operations of the
business.

We own most of the manufacturing facilities. However, a limited
number of plants and parcels of land with the related
manufacturing equipment are leased. Substantially all of our
transportation equipment and forward-positioned distribution
centers and most of the storage facilities containing finished
goods are leased or operated by third parties. Information about
the properties supporting our two business segments follows.

As of July 22, 2010, forty-one domestic production
facilities in Alabama, California, Colorado, Florida, Georgia,
Idaho, Illinois, Minnesota, Nebraska, New Jersey, Ohio, Oregon,
Pennsylvania, Texas, Utah, and Washington; one international
production facility in Guaynabo, Puerto Rico and Qingdao, China;
one manufacturing facility in Taber, Canada; one 50% owned
manufacturing facility in each of Colorado, Minnesota,
Washington, and the United Kingdom; one 67% owned manufacturing
facility in Puerto Rico, and three 50% owned manufacturing
facilities in the Netherlands.

In addition, we are currently constructing a potato processing
facility near Delhi, Louisiana, which is scheduled to open in
the fall of 2010.

ITEM 3.

LEGAL
PROCEEDINGS

In fiscal 1991, we acquired Beatrice Company
(Beatrice). As a result of the acquisition and the
significant pre-acquisition contingencies of the Beatrice
businesses and its former subsidiaries, our consolidated
post-acquisition financial statements reflect liabilities
associated with the estimated resolution of these contingencies.
These include various litigation and environmental proceedings
related to businesses divested by Beatrice prior to its
acquisition by us. The litigation includes suits against a
number of lead paint and pigment manufacturers, including
ConAgra Grocery Products and the Company as alleged successors
to W. P. Fuller Co., a lead paint and pigment manufacturer owned
and operated by Beatrice until 1967. Although decisions
favorable to us have been rendered in Rhode Island, New Jersey,
Wisconsin, and Ohio, we remain a defendant in active suits in
Illinois and California. The Illinois suit seeks
class-wide
relief in the form of medical monitoring for elevated levels of
lead in blood. In California, a number of cities and counties
have joined in a consolidated action seeking abatement of the
alleged public nuisance.

The environmental proceedings include litigation and
administrative proceedings involving Beatrices status as a
potentially responsible party at 36 Superfund, proposed
Superfund, or state-equivalent sites; these sites involve
locations previously owned or operated by predecessors of
Beatrice that used or produced petroleum, pesticides,
fertilizers, dyes, inks, solvents, PCBs, acids, lead, sulfur,
tannery wastes,
and/or other
contaminants. Beatrice has paid or is in the process of paying
its liability share at 33 of these sites. Reserves for these
matters have been established based on our best estimate of the
undiscounted remediation liabilities, which estimates include
evaluation of investigatory studies, extent of required
clean-up,
the known volumetric contribution of Beatrice and other
potentially responsible parties, and our experience in
remediating sites. The reserves for Beatrice environmental
matters totaled $70 million as of May 30, 2010, a
majority of which relates to the Superfund and state-equivalent
sites referenced above. The reserve for Beatrice environmental
matters reflects a reduction in pre-tax expense of approximately
$15 million made in the third quarter of fiscal 2010 due to
favorable regulatory developments at one of the sites. We expect
expenditures for Beatrice environmental matters to continue for
up to 20 years.

We are a party to a number of lawsuits and claims arising out of
the operation of our business, including lawsuits and claims
related to the February 2007 recall of our peanut butter
products and litigation we initiated against an insurance
carrier to recover our settlement expenditures and defense
costs. We recognized a charge of $25 million during the
third quarter of fiscal 2009 in connection with the disputed
coverage with this insurance carrier. During the second quarter
of fiscal 2010, a Delaware state court rendered a decision on
certain matters in our claim for the disputed coverage favorable
to the insurance carrier. We intend to appeal this decision and
continue to pursue this matter vigorously.

An investigation by the Division of Enforcement of the
U.S. Commodity Futures Trading Commission
(CFTC) of certain commodity futures transactions of
a former Company subsidiary has led to an investigation of us by
the CFTC. The investigation may result in litigation by the CFTC
against us. The former subsidiary was sold on June 23,
2008, as part of the divestiture of our trading and
merchandising operations. The CFTCs Division of

12

Enforcement has advised us that it questions whether certain
trading activities of the former subsidiary violated the
Commodity Exchange Act and that the CFTC has been evaluating
whether we should be implicated in the matter based on the
existence of the parent-subsidiary relationship between the two
entities at the time of the trades. Based on information we have
learned to date, we believe that both we and the former
subsidiary have meritorious defenses. There have been
discussions with the CFTC concerning resolution of this matter.
We also believe the sale contract with the purchaser of the
business provides us indemnification rights. Accordingly, we do
not believe any decision by the CFTC to pursue this matter will
have a material adverse effect on our financial condition or
results of operations. If litigation ensues, we intend to defend
this matter vigorously.

After taking into account liabilities recognized for all of the
foregoing matters, management believes the ultimate resolution
of such matters should not have a material adverse effect on our
financial condition, results of operations, or liquidity.

The following table presents the total number of shares of
common stock purchased during the fourth quarter of fiscal 2010,
the average price paid per share, the number of shares that were
purchased as part of a publicly announced repurchase program,
and the approximate dollar value of the maximum number of shares
that may yet be purchased under the share repurchase program:

Maximum Number (or

Total Number

Average

Total Number of Shares

Approximate Dollar

of Shares (or

Price Paid

Purchased as Part of

Value) of Shares that

Units)

per Share

Publicly Announced

may yet be Purchased

Period

Purchased

(or Unit)

Plans or Programs (1)

under the Program (1)

February 29 through March 28, 2010







$

500,062,000

March 29 through April 25, 2010

3,999,159

25.01

3,999,159

$

400,062,000

April 26 through May 30, 2010







$

400,062,000

Total Fiscal 2010 Fourth Quarter

3,999,159

25.01

3,999,159

$

400,062,000

(1)

Pursuant to publicly announced share repurchase programs from
December 2003 through May 30, 2010, we have repurchased
approximately 110.5 million shares at a cost of
$2.6 billion. The current program has no expiration date.

13

ITEM 6.

SELECTED
FINANCIAL DATA

For the Fiscal Years Ended May

2010

2009

2008

2007

2006

Dollars in millions, except per
share amounts

Net sales (1)

$

12,079.4

$

12,426.1

$

11,248.2

$

10,178.4

$

9,908.6

Income from continuing operations (1)

$

744.8

$

617.8

$

491.1

$

454.1

$

442.9

Net income attributable to ConAgra Foods, Inc.

$

725.8

$

978.4

$

930.6

$

764.6

$

533.8

Basic earnings per share:

Income from continuing operations attributable to ConAgra Foods,
Inc. common stockholders (1)

$

1.68

$

1.36

$

1.01

$

0.90

$

0.85

Net income attributable to ConAgra Foods, Inc. common
stockholders

$

1.63

$

2.16

$

1.91

$

1.52

$

1.03

Diluted earnings per share:

Income from continuing operations attributable to ConAgra Foods,
Inc. common stockholders (1)

$

1.67

$

1.36

$

1.00

$

0.90

$

0.85

Net income attributable to ConAgra Foods, Inc. common
stockholders

$

1.62

$

2.15

$

1.90

$

1.51

$

1.03

Cash dividends declared per share of common stock

$

0.7900

$

0.7600

$

0.7500

$

0.7200

$

0.9975

At Year-End

Total assets

$

11,738.0

$

11,073.3

$

13,682.5

$

11,835.5

$

11,970.4

Senior long-term debt (noncurrent)

$

3,030.5

$

3,259.5

$

3,180.4

$

3,211.7

$

2,745.9

Subordinated long-term debt (noncurrent)

$

195.9

$

195.9

$

200.0

$

200.0

$

400.0

(1)

Amounts exclude the impact of discontinued operations of the
trading and merchandising business, the international
agricultural products operations, the specialty meats
foodservice business, the packaged meats and cheese businesses,
the seafood business, the Knotts Berry
Farm®
business, the
Cooks®
Ham business, the
Fernandos®
business, and the Gilroy Foods &
Flavorstm
operations.

14

ITEM 7.

MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion and analysis is intended to provide a
summary of significant factors relevant to our financial
performance and condition. The discussion should be read
together with our consolidated financial statements and related
notes in Item 8, Financial Statements and Supplementary
Data. Results for the fiscal year ended May 30, 2010 are
not necessarily indicative of results that may be attained in
the future.

ConAgra Foods, Inc. (NYSE: CAG) is one of North Americas
leading food companies, with brands in 96% of Americas
households. Consumers find
Banquet®,
Chef
Boyardee®,
Egg
Beaters®,
Healthy
Choice®,
Hebrew
National®,
Hunts®,
Marie
Callenders®,
Orville
Redenbachers®,
PAM®,
Peter
Pan®,
Reddi-wip®,
and many other ConAgra Foods brands in grocery, convenience,
mass merchandise, and club stores. ConAgra Foods also has a
strong
business-to-business
presence, supplying frozen potato and sweet potato products, as
well as other vegetable, spice, and grain products to a variety
of well-known restaurants, foodservice operators, and commercial
customers.

Fiscal 2010 diluted earnings per share were $1.62, including
$1.67 per diluted share of income from continuing operations and
a loss of $0.05 per diluted share from discontinued operations.
Fiscal 2009 diluted earnings per share were $2.15, including
income from continuing operations of $1.36 per diluted share and
income from discontinued operations of $0.79 per diluted share.
Several items affect the comparability of results, as discussed
below.

a gain of $19 million ($11 million after-tax)
resulting from the
Pemmican®
beef jerky divestiture, and



net tax benefits of approximately $6 million primarily
related to changes in estimates.

15

In addition, fiscal 2009 diluted income per share benefited by
approximately $0.03 as a result of the fiscal year including
53 weeks.

Recent developments in our strategies and action plans include:

Garner,
North Carolina Accident

On June 9, 2009, an accidental explosion occurred at our
manufacturing facility in Garner, North Carolina (the
Garner accident). This facility was the primary
production facility for our Slim
Jim®
branded meat snacks. On June 13, 2009, the U.S. Bureau
of Alcohol, Tobacco, Firearms and Explosives announced its
determination that the explosion was the result of an accidental
natural gas release, and not a deliberate act.

We maintain comprehensive property (including business
interruption), workers compensation, and general liability
insurance policies with very significant loss limits that we
believe will provide substantial and broad coverage for the
anticipated losses arising from this accident.

The costs incurred and insurance recoveries recognized, to date,
are reflected in our consolidated financial statements, as
follows:

Fiscal Year Ended May 30, 2010

Consumer

(in millions)

Foods

Corporate

Total

Cost of goods sold:

Inventory write-downs and other costs

$

12

$



$

12

Selling, general and administrative expenses:

Fixed asset impairments,
clean-up
costs, etc.

$

47

$

3

$

50

Insurance recoveries recognized

(58

)



(58

)

Total selling, general and administrative expenses

$

(11

)

$

3

$

(8

)

Net loss

$

1

$

3

$

4

The amounts in the table, above, exclude lost profits due to the
interruption of the business, as well as any related business
interruption insurance recoveries.

Through May 30, 2010, we had received payment advances from
the insurers of approximately $85 million for our initial
insurance claims for this matter, $58 million of which has
been recognized as a reduction to selling, general and
administrative expenses. We anticipate final settlement of the
claim will occur in fiscal 2011. Based on managements
current assessment of production options, the expected level of
insurance proceeds, and the estimated potential amount of losses
and impact on the Slim
Jim®
brand, we do not believe that the accident will have a material
adverse effect on our results of operations, financial
condition, or liquidity. We expect Slim
Jim®
profitability to reach pre-accident levels by fiscal 2012.

In the fourth quarter of fiscal 2010, we determined that certain
additional equipment located in the facility, with a carrying
value of approximately $12 million, was impaired
(impairment included in the table above). We expect to be
reimbursed by our insurers for the cost of replacing these
assets, and we have recognized a $12 million insurance
recovery in fiscal 2010 (included in the table above),
representing the carrying value of these destroyed assets.

Restructuring
Plans

In March 2010, we announced a plan, authorized by our Board of
Directors, related to the long-term production of our meat snack
products. The plan provides for the closure of our meat snacks
production facility in Garner, North Carolina, and the movement
of production to our existing facility in Troy, Ohio. Since the
Garner accident, the Troy facility has been producing a portion
of our meat snack products. Upon completion of the plans
implementation, which is expected to be in the second quarter of
fiscal 2012, the Troy facility will be our primary meat snacks
production facility. This plan is expected to result in the
termination of approximately 500 employee positions in
Garner and the creation of approximately 200 employee
positions in Troy.

16

In May 2010, we made a decision to move certain administrative
functions from Edina, Minnesota, to Naperville, Illinois. We
expect to complete the transition of these functions in the
first half of fiscal 2011. This plan, together with the plan to
move production of our meat snacks from Garner, North Carolina
to Troy, Ohio, are collectively referred to as the 2010
restructuring plan (2010 plan). In connection with
the 2010 plan, we expect to incur pre-tax cash and non-cash
charges for asset impairments, accelerated depreciation,
severance, relocation, and site closure costs of
$67 million. In fiscal 2010, we recognized charges of
approximately $39 million in relation to these plans.

As part of a focus on cost reduction, we previously initiated
restructuring plans focused on streamlining our supply chain,
reducing selling, general, and administrative costs
(2006-2008
restructuring plan), and streamlining the Consumer Foods
international operations
(2008-2009
restructuring plan). As part of the
2006-2008
restructuring plan, we began construction of a new production
facility in fiscal 2007. As a result of an updated assessment of
manufacturing strategies and the related impact on this
partially completed production facility, we decided to divest
this facility. Accordingly, in the fourth quarter of fiscal
2010, we recognized a non-cash impairment charge of
$33 million, representing a write-down of the carrying
value of the assets to fair value based on anticipated proceeds
from the sale. This charge is reflected in selling, general and
administrative expenses within the Consumer Foods segment.

Acquisitions

In June 2010, subsequent to the end of our fiscal 2010, we
acquired the assets of American Pie, LLC, a manufacturer of
frozen fruit pies, thaw and serve pies, fruit cobblers, and pie
crusts under the licensed Marie
Callenders®
and Claim
Jumper®
trade names, as well as frozen dinners, pot pies, and appetizers
under the Claim
Jumper®
trade name. This business is included in the Consumer Foods
segment.

During the fourth quarter of fiscal 2010, we completed the
acquisition of Elan Nutrition (Elan), a privately
held formulator and manufacturer of private label snack and
nutrition bars, for approximately $103 million in cash. We
expect the acquisition to add approximately $100 million to
our Consumer Foods segment net sales in fiscal 2011, and we
expect this acquisition to be accretive to operating cash flows
immediately.

Divestiture
of Gilroy Dehydrated Vegetable Business

In July 2010, subsequent to the end of our fiscal 2010, we
completed the sale of substantially all of the assets of
Gilroy Foods &
Flavorstm
dehydrated garlic, onion, capsicum and Controlled
Moisturetm,
GardenFrost®,
Redi-Madetm,
and fresh vegetable operations for $250 million in cash,
subject to final working capital adjustments. Based on our
estimate of proceeds from the sale of this business, we
recognized impairment and related charges totaling
$59 million ($40 million after-tax) in the fourth
quarter of fiscal 2010. We reflected the results of these
operations as discontinued operations for all periods presented.

Sweet
Potato Investment

In August 2009, we announced plans to build a new,
environmentally friendly potato processing facility near Delhi,
Louisiana, designed primarily to process sweet potatoes from the
region into french fries and related products. As anticipated,
the new facility is scheduled to open in the fall of 2010.

The Consumer Foods reporting segment includes branded and
private label food products that are sold in various retail and
foodservice channels, principally in North America. The products
include a variety of categories (meals, entrees, condiments,
sides, snacks, and desserts) across frozen, refrigerated, and
shelf-stable temperature classes.

17

During fiscal 2010, we completed the transition of the direct
management of the Consumer Foods reporting segment from the
Chief Executive Officer to the Consumer Foods President
position. In conjunction with this organizational change,
beginning in fiscal 2010, we have aligned our segment reporting
to be consistent with the manner in which our operating results
are presented to, and reviewed by, our Chief Executive Officer.
All prior periods have been recast to reflect this change.

In February 2010, we completed the sale of our
Lucks®
brand for proceeds of approximately $22 million in cash,
resulting in a pre-tax gain of $14 million ($9 million
after-tax), reflected in selling, general and administrative
expenses.

In June 2009, we completed the divestiture of the
Fernandos®
foodservice business for proceeds of $6 million in cash. We
reflect the results of these operations as discontinued
operations for all periods presented. The assets and liabilities
of the divested
Fernandos®
business have been reclassified as assets and liabilities held
for sale within our consolidated balance sheets for all periods
prior to divestiture.

The Commercial Foods reporting segment includes commercially
branded foods and ingredients, which are sold principally to
foodservice, food manufacturing, and industrial customers. The
segments primary products include: specialty potato
products, milled grain ingredients, and a variety of vegetable
products, seasonings, blends, and flavors, which are sold under
brands such as ConAgra
Mills®,
Lamb
Weston®,
and
Spicetec®.

During the first quarter of fiscal 2010, we transferred the
management of the
Alexia®
frozen food operations from the Consumer Foods segment to the
Commercial Foods segment. Segment results have been recast to
reflect this change.

As discussed above, we reflected the results of the Gilroy
Foods &
FlavorsTM
operations as discontinued operations for all periods presented.
The assets and liabilities of the divested Gilroy
Foods &
FlavorsTM
dehydrated vegetable business have been reclassified as assets
and liabilities held for sale within our consolidated balance
sheets for all periods presented.

In fiscal 2009, following the sale of our trading and
merchandising operations and related organizational changes, we
transferred the management of commodity hedging activities
(except for those related to our milling operations) to a
centralized procurement group. Beginning in the first quarter of
fiscal 2009, we began to reflect realized and unrealized gains
and losses from derivatives (except for those related to our
milling operations) used to economically hedge anticipated
commodity consumption in earnings immediately within general
corporate expenses. The gains and losses are reclassified to
segment operating results in the period in which the underlying
item being economically hedged is recognized in cost of goods
sold. We believe this change results in better segment
management focus on key operational initiatives and improved
transparency to derivative gains and losses.

Foreign currency derivatives used to manage foreign currency
risk of forecasted cash flows are not designated for hedge
accounting treatment. We believe these derivatives provide
economic hedges of the foreign currency risk of certain
forecasted transactions. As such, these derivatives are
recognized at fair market value with realized and unrealized
gains and losses recognized in general corporate expenses. The
gains and losses are subsequently recognized in the operating
results of the reporting segments in the period in which the
underlying transaction being economically hedged is included in
earnings.

18

The following table presents the net derivative gains (losses)
from economic hedges of forecasted commodity consumption and the
foreign currency risk of certain forecasted transactions, under
this methodology (in millions):

Based on our forecasts of the timing of recognition of the
underlying hedged items, we expect to reclassify losses of
$5 million and gains of $2 million to segment
operating results in fiscal 2011 and 2012 and thereafter,
respectively. Amounts allocated, or to be allocated, to segment
operating results during fiscal 2010 and 2011 include
$5 million of losses incurred during fiscal 2009.

During fiscal 2008, derivative instruments used to create
economic hedges of such commodity inputs were
marked-to-market
each period with both realized and unrealized changes in market
value immediately included in cost of goods sold within segment
operating profit. In fiscal 2008, net derivative gains from
economic hedges of forecasted commodity consumption and foreign
currency risk of certain forecasted transactions were
$63 million in the Consumer Foods segment and
$23 million in the Commercial Foods segment.

2010 vs. 2009

Net Sales

($ in millions)

Fiscal 2010

Fiscal 2009

% Increase/

Reporting Segment

Net Sales

Net Sales

(Decrease)

Consumer Foods

$

8,002

$

7,979



%

Commercial Foods

4,077

4,447

(8

)%

Total

$

12,079

$

12,426

(3

)%

Overall, our net sales decreased $347 million to
$12.08 billion in fiscal 2010, primarily driven by fiscal
2009 including 53 weeks, as well as lower flour milling net
sales in fiscal 2010 resulting from lower underlying wheat costs
passed on to customers. This decrease was partially offset by
improved pricing and mix in the Consumer Foods segment and the
Lamb
Weston®
specialty potato products business in the Commercial Foods
segment. Volume reflected a benefit of approximately 2% in
fiscal 2009 due to the inclusion of the additional week of
results.

Consumer Foods net sales for fiscal 2010 were $8.0 billion,
basically flat as compared to fiscal 2009. Results reflected
flat volume and essentially unchanged net pricing and mix.
Volume reflected a benefit of approximately 2% in fiscal 2009
due to the inclusion of the additional week of results.
Excluding the impact of the additional week, volume increased 2%
in fiscal 2010, reflecting successful innovation and marketing.

Commercial Foods net sales were $4.08 billion in fiscal
2010, a decrease of $370 million, or 8% compared to fiscal
2009. Net sales in our flour milling business were approximately
$330 million lower in fiscal 2010 than in fiscal 2009,
principally reflecting the pass-through of lower wheat prices.
Results also reflected a slight decrease in sales in our Lamb
Weston®
specialty potato products business, reflecting lower volume of
approximately 2%, partially offset by improved pricing and mix.
Volume reflected a benefit of approximately 2% in fiscal 2009
due to the inclusion of the additional week of results.
Excluding the impact of the additional week, volume was
essentially unchanged in fiscal 2010, as compared to fiscal 2009.

SG&A expenses totaled $1.82 billion for fiscal 2010,
an increase of 8% compared to fiscal 2009. We estimate that the
inclusion of the extra week in the fiscal 2009 results increased
SG&A expenses by approximately 2% in that fiscal year.

Selling, general and administrative expenses for fiscal 2010
reflected the following:



an increase in incentive compensation expense of
$99 million,



charges totaling $36 million in connection with the
Companys 2010 plan, consisting of charges related to the
Companys decision to move manufacturing activities in
Garner, North Carolina to Troy, Ohio, and the Companys
decision to move administrative functions in Edina, Minnesota to
Naperville, Illinois,



a charge of $33 million in connection with the impairment
of a partially completed production facility,



an increase in advertising and promotion expense of
$29 million,



an increase in self-insured medical expense of $15 million,



a benefit of $15 million associated with a favorable
adjustment to an environmental-related liability,



transaction-related costs of $14 million associated with
securing federal tax benefits related to the Delhi, LA sweet
potato production facility (the associated income tax benefits
will be recognized in future periods),



a $14 million gain on the sale of the
Lucks®brand,



increase in stock-based compensation expense of $13 million,



a decrease in charitable donations of $9 million, and



a net benefit of $8 million, representing SG&A
expenses associated with the Garner accident that were more than
offset by insurance recoveries.

Selling, general and administrative expenses for fiscal 2009
reflected the following:



a charge of $50 million representing the net premium and
fees paid to retire certain debt instruments prior to maturity,



a charge of $25 million related to a coverage dispute with
an insurer,



a gain of $19 million from the sale of the
Pemmican®
brand,



charges related to peanut butter and pot pie recalls of
$11 million,



charges of $10 million related to the execution of our
restructuring plans, and



$5 million of income, net of direct pass-through costs, for
reimbursement of expenses related to transition services
provided to the buyers of certain divested businesses.

Consumer Foods operating profit increased $164 million in
fiscal 2010 versus the prior year to $1.1 billion. Gross
profits were $262 million higher in fiscal 2010 than in
fiscal 2009 driven by the impact of lower commodity input costs
and the benefit of supply chain cost savings initiatives.
Consumer Foods SG&A expenses were higher in fiscal 2010
than in fiscal 2009, reflecting a $35 million increase in
incentive compensation expenses and a $22 million increase
in advertising and promotion expenses. The Consumer Foods
segment recognized a $14 million gain on the sale of the
Lucks®
brand in fiscal 2010. Charges totaling $36 million were
recognized in the Consumer Foods segment in fiscal 2010 in
connection with our 2010 plan, including charges related to our
decision to move manufacturing activities in Garner, North
Carolina to Troy, Ohio, and our decision to move administrative
functions in Edina, Minnesota to Naperville, Illinois. An
additional charge of $33 million was recognized in
connection with the impairment of a production facility, as we
made a decision to divest the partially completed facility. The
Consumer Foods segment recognized a $19 million gain on the
sale of the
Pemmican®
brand, incurred costs of product recalls classified as SG&A
expense of $11 million, and incurred costs of
$8 million in connection with our restructuring plans in
fiscal 2009. The impact of foreign currencies, including related
economic hedges, resulted in a reduction of operating profit of
approximately $9 million in fiscal 2010, as compared to
fiscal 2009.

The Garner accident in June 2009 resulted in charges within
SG&A totaling $47 million for the impairment of
property, plant and equipment, workers compensation, site
clean-up,
and other related costs in fiscal 2010 (in addition to inventory
write-downs and other related costs of $12 million
recognized in cost of goods sold). The impact of these charges
was offset by insurance recoveries of $58 million in fiscal
2010 for the involuntary conversion of assets. Gross profits
from Slim
Jim®
branded products were $25 million and $51 million in
fiscal 2010 and 2009, respectively, reflecting the impact of the
disruption of production due to the accident.

Commercial Foods operating profit decreased $4 million in
fiscal 2010 versus the prior year to $539 million. Improved
gross profits in the flour milling business were partially
offset by reduced gross profits in the specialty blend and
flavorings business and the specialty potato business. Gross
profits continued to be negatively impacted by challenging
conditions in the foodservice channel as well as high production
costs associated with a high cost and poor quality potato crop
in our specialty potato business. Commercial Foods SG&A
expenses were higher in fiscal 2010 than in fiscal 2009,
reflecting a $5 million increase in incentive compensation
expenses. Commercial Foods operating profit for fiscal 2009
reflected the benefit of the additional week of operations.

In fiscal 2010, net interest expense was $160 million, a
decrease of $26 million, or 14%, from fiscal 2009. The
reduction in net interest expense is primarily the result of
increased capitalized interest and increased interest income in
fiscal 2010. Interest income includes $83 million and
$73 million in fiscal 2010 and 2009, respectively, from the
payment-in-kind
notes received in June 2008 in connection with the divestiture
of our trading and merchandising operations.

Our income tax expense was $362 million and
$319 million in fiscal 2010 and 2009, respectively. The
effective tax rate (calculated as the ratio of income tax
expense to pre-tax income from continuing operations, inclusive
of equity method investment earnings) was 33% for fiscal 2010
and 34% in fiscal 2009. The lower effective tax rate in fiscal
2010 was reflective of favorable changes in estimates and audit
settlements, as well as certain income tax

21

credits and deductions identified in fiscal 2010 that related to
prior periods. These benefits were offset, in part, by
unfavorable tax consequences of the Patient Protection and
Affordable Care Act and the Health Care and Education
Reconciliation Act of 2010.

The Company expects its effective tax rate in fiscal 2011,
exclusive of any unusual transactions or tax events, to be
approximately 34%.

We include our share of the earnings of certain affiliates based
on our economic ownership interest in the affiliates.
Significant affiliates produce and market potato products for
retail and foodservice customers. Our share of earnings from our
equity method investments was $22 million ($2 million
in the Consumer Foods segment and $20 million in the
Commercial Foods segment) and $24 million ($3 million
in the Consumer Foods segment and $21 million in the
Commercial Foods segment) in fiscal 2010 and 2009, respectively.
Equity method investment earnings in the Commercial Foods
segment reflects continued difficult market conditions for our
foreign and domestic potato ventures.

Results
of Discontinued Operations

Our discontinued operations generated an after-tax loss of
$22 million in fiscal 2010 and earnings of
$361 million in fiscal 2009. In fiscal 2010, we decided to
divest our dehydrated vegetable operations. As a result of this
decision, we recognized an after-tax impairment charge of
$40 million in fiscal 2010, representing a write-down of
the carrying value of the related long-lived assets to fair
value, based on the anticipated sales proceeds. In fiscal 2009,
we completed the sale of the trading and merchandising
operations and recognized an after-tax gain on the disposition
of approximately $301 million. In the fourth quarter of
fiscal 2009, we decided to sell certain small foodservice
brands. The sale of these brands was completed in June 2009. We
recognized after-tax impairment charges of $6 million in
fiscal 2009, in anticipation of this divestiture.

Our diluted earnings per share in fiscal 2010 were $1.62
(including earnings of $1.67 per diluted share from continuing
operations and a loss of $0.05 per diluted share from
discontinued operations). Our diluted earnings per share in
fiscal 2009 were $2.15 (including earnings of $1.36 per diluted
share from continuing operations and $0.79 per diluted share
from discontinued operations) See Items Impacting
Comparability above as several other significant items
affected the comparability of
year-over-year
results of operations.

2009 vs. 2008

Net Sales

($ in millions)

Fiscal 2009

Fiscal 2008

Reporting Segment

Net Sales

Net Sales

% Increase

Consumer Foods

$

7,979

$

7,400

8

%

Commercial Foods

4,447

3,848

16

%

Total

$

12,426

$

11,248

11

%

Overall, our net sales increased $1.18 billion to
$12.43 billion in fiscal 2009, reflecting improved pricing
and mix in the Consumer Foods segment and increased pricing in
the milling and specialty potato operations of the Commercial
Foods segment, as well as an additional week in fiscal 2009.

Consumer Foods net sales for fiscal 2009 were
$7.98 billion, an increase of 8% compared to fiscal 2008.
Results reflected an increase of 7% from improved net pricing
and product mix and flat volume. Volume reflected a benefit of
approximately 2% in fiscal 2009 due to the inclusion of an
additional week of results. The strengthening of the
U.S. dollar relative to foreign currencies resulted in a
reduction of net sales of approximately 1% as compared to fiscal
2008.

Commercial Foods net sales were $4.45 billion in fiscal
2009, an increase of $599 million, or 16% compared to
fiscal 2008. Increased net sales reflected the pass through of
higher wheat prices by the segments flour milling
operations and higher selling prices in our Lamb
Weston®
specialty potato products business, partially offset by lower
foodservice volumes for our potato products. Results reflected a
benefit of approximately 2% due to the inclusion of an
additional week in fiscal 2009. Net sales from Watts Brothers
and Lamb Weston BSW, businesses acquired in the fourth quarter
of fiscal 2008 and the second quarter of fiscal 2009,
respectively, contributed $119 million to net sales in
fiscal 2009.

SG&A
Expenses (includes General Corporate Expense)
(SG&A)

SG&A expenses totaled $1.68 billion for fiscal 2009, a
decrease of 4% compared to fiscal 2008. We estimate that the
inclusion of an extra week in the fiscal 2009 results increased
SG&A expenses by approximately 2%.

SG&A expenses for fiscal 2009 reflected the following:



a decrease in incentive compensation expense of $53 million,



a charge of $50 million representing the net premium and
fees paid to retire certain debt instruments prior to maturity,



a decrease in pension expense of $18 million,



a decrease in postretirement expense of $8 million,



a charge of $25 million related to a coverage dispute with
an insurer,



a gain of $19 million from the sale of the
Pemmican®
brand,



a decrease in stock compensation expense of $17 million,



an increase in salaries expense of $10 million,



charges related to peanut butter and pot pie recalls of
$11 million,



charges of $10 million related to the execution of our
restructuring plans,



$5 million of income, net of direct pass-through costs, for
reimbursement of expenses related to transition services
provided to the buyers of certain divested businesses, and



an increase in advertising and promotion expense of
$4 million.

Included in SG&A expenses for fiscal 2008 were the
following items:



charges of $22 million related to the execution of our
restructuring plans,



charges related to product recalls of $21 million, and



$14 million of income, net of direct pass-through costs,
for reimbursement of expenses related to transition services
provided to the buyers of certain divested businesses.

Consumer Foods operating profit increased $119 million in
fiscal 2009 versus the prior year to $949 million. Consumer
Foods gross profit for fiscal 2009 was $2.03 billion, an
increase of $45 million, or 2%, compared to fiscal 2008.
The increase in gross profit reflected improved net pricing and
mix and significant supply chain productivity savings, partially
offset by significantly higher input costs. Consumer Foods gross
profit in fiscal 2008 included approximately $28 million of
costs related to the recalls of pot pie and peanut butter
products. The increase in operating profit was also reflective
of a number of other factors, including:



restructuring costs included in SG&A expenses of
$8 million and $19 million in fiscal 2009 and 2008,
respectively,



costs of the product recalls classified in SG&A expenses of
approximately $11 million and $21 million in fiscal
2009 and 2008, respectively,



a decrease in incentive compensation expense of
$21 million, and



a gain of approximately $19 million related to the sale of
the
Pemmican®
brand.

Commercial Foods operating profit increased $77 million to
$543 million in fiscal 2009. Operating profit improvement
was principally driven by the improved gross profit. Commercial
Foods gross profit was $758 million for fiscal 2009, an
increase of $90 million, or 13%, compared to fiscal 2008.
All major businesses in this segment experienced significantly
higher input costs in fiscal 2009 than in fiscal 2008 and
increased pricing to offset these higher costs. Improved results
reflected increased gross profit in our flour milling operations
due to high quality wheat crops and improved flour conversion
margins. Our Lamb Weston BSW specialty potato business achieved
increased gross profit in fiscal 2009, reflecting gross profit
of $28 million from the Watts Brothers business acquired in
late fiscal 2008 and the Lamb Weston BSW business acquired in
the second quarter of fiscal 2009, as well as increased pricing
that more than offset increased input costs and lower volume.

In fiscal 2009, net interest expense was $186 million, a
decrease of $67 million, or 26%, from fiscal 2008. The
reduction in net interest expense reflects interest income of
$78 million in fiscal 2009, largely due to the
payment-in-kind
notes received in June 2008 in connection with the divestiture
of our trading and merchandising operations.

Our income tax expense was $319 million and
$210 million in fiscal 2009 and 2008, respectively. The
effective tax rate (calculated as the ratio of income tax
expense to pre-tax income from continuing operations, inclusive
of equity method investment earnings) was 34% for fiscal 2009
and 30% in fiscal 2008. During fiscal 2008, we adjusted our
estimates of income taxes payable due to increased benefits from
a domestic manufacturing deduction and lower foreign income
taxes.

We include our share of the earnings of certain affiliates based
on our economic ownership interest in the affiliates.
Significant affiliates produce and market potato products for
retail and foodservice customers. Our share of earnings from our
equity method investments were $24 million ($3 million
in the Consumer Foods segment and

24

$21 million in the Commercial Foods segment) and
$50 million ($1 million in the Consumer Foods segment
and $49 million in the Commercial Foods segment) in fiscal
2009 and 2008, respectively. The decrease in equity method
investment earnings in Commercial Foods was driven by the
reduced profits of a foreign potato venture, resulting primarily
from excess supply of potato products in the foreign potato
ventures market.

Results
of Discontinued Operations

Our discontinued operations generated after-tax earnings of
$361 million in fiscal 2009. In fiscal 2009, we completed
the sale of the trading and merchandising operations and
recognized an after-tax gain on the disposition of approximately
$301 million. In the fourth quarter of fiscal 2009, we
decided to divest certain small foodservice brands. The sale of
these brands was completed in June 2009, subsequent to our
fiscal 2009. We recognized after-tax impairment charges of
$6 million in fiscal 2009, in anticipation of this
divestiture.

Our diluted earnings per share in fiscal 2009 were $2.15
(including earnings of $1.36 per diluted share from continuing
operations and $0.79 per diluted share from discontinued
operations). Our diluted earnings per share in fiscal 2008 were
$1.90 (including earnings of $1.00 per diluted share from
continuing operations and $0.90 per diluted share from
discontinued operations).

Our primary financing objective is to maintain a prudent capital
structure that provides us flexibility to pursue our growth
objectives. If necessary, we use short-term debt principally to
finance ongoing operations, including our seasonal requirements
for working capital (accounts receivable, prepaid expenses and
other current assets, and inventories, less accounts payable,
accrued payroll, and other accrued liabilities) and a
combination of equity and long-term debt to finance both our
base working capital needs and our noncurrent assets.

Commercial paper borrowings (usually less than 30 days
maturity) are reflected in our consolidated balance sheets
within notes payable. At May 30, 2010, we had a
$1.5 billion multi-year revolving credit facility with a
syndicate of financial institutions which matures in December
2011. The multi-year facility has historically been used
principally as a
back-up
facility for our commercial paper program. As of May 30,
2010, there were no outstanding borrowings under the facility.
Borrowings under the multi-year facility bear interest at or
below prime rate and may be prepaid without penalty. The
multi-year facility requires that our consolidated funded debt
not exceed 65% of our consolidated capital base, and that our
fixed charges coverage ratio be greater than 1.75 to 1.0. As of
the end of fiscal 2010, the Company was in compliance with these
financial covenants.

As of the end of fiscal 2010, our senior long-term debt ratings
were all investment grade. A significant downgrade in our credit
ratings would not affect our ability to borrow amounts under the
revolving credit facility, although borrowing costs would
increase. A downgrade of our short-term credit ratings would
impact our ability to borrow under our commercial paper program
by negatively impacting borrowing costs and causing shorter
durations, as well as making access to commercial paper more
difficult.

We have repurchased shares of our common stock from time to time
after considering market conditions as well as repurchase limits
authorized by our Board of Directors. In February 2010, our
Board of Directors approved a $500 million share repurchase
program with no expiration date. We repurchased approximately
4 million shares of our common stock for approximately
$100 million under this program in the fourth quarter of
fiscal 2010. We completed an accelerated share repurchase
program during fiscal 2009. We paid $900 million and
received 38.4 million shares in the first quarter of fiscal
2009 when the program was initiated and an additional
5.6 million shares in the fourth quarter of fiscal 2009
under this program.

During the fourth quarter of fiscal 2009, we issued
$1 billion aggregate principal amount of senior notes
($500 million maturing in 2014 and $500 million
maturing in 2019), with an average blended interest rate of

25

approximately 6.4%. We subsequently repaid approximately
$900 million aggregate principal amount of senior notes
with maturities of 2010, 2011, and 2027. We incurred charges of
$50 million for the premium paid and transaction costs
associated with the debt retirement.

During the first quarter of fiscal 2009, we sold our trading and
merchandising operations for proceeds of: 1) approximately
$2.2 billion in cash, net of transaction costs,
2) $550 million (original principal amount) of
payment-in-kind
debt securities issued by the purchaser that were recorded at an
initial estimated fair value of $479 million (the
Notes), 3) a short-term receivable of
$37 million due from the purchaser (which was subsequently
collected in December 2008), and 4) a four-year warrant to
acquire approximately 5% of the issued common equity of the
parent company of the divested operations, which has been
recorded at an estimated fair value of $1.8 million. In May
2010, we received $115 million as payment in full of all
principal and interest due on the first tranche of notes from
the purchaser, in advance of the scheduled June 19, 2010
maturity date. The remaining Notes had a carrying value of
$490 million at May 30, 2010.

During the fourth quarter of fiscal 2010, we completed the sale
of approximately 17,600 acres of farmland to an unrelated
buyer and immediately entered into a long-term lease of the land
with an affiliate of the buyer. We received proceeds of
approximately $75 million in cash, removed the land from
our balance sheet, and recorded a deferred gain of approximately
$30 million (reflected primarily in noncurrent
liabilities). The lease agreement has an initial term of ten
years and two five-year renewal options. This lease will be
accounted for as an operating lease. We will recognize the
deferred gain as a reduction of rent expense over the lease term.

In July 2010, subsequent to the end of our fiscal 2010, we
completed the sale of substantially all of the assets of
Gilroy Foods &
Flavorstm
dehydrated garlic, onion, capsicum and Controlled
Moisturetm,
GardenFrost®,
Redi-Madetm,
and fresh vegetable operations for $250 million in cash,
subject to final working capital adjustments.

In fiscal 2010, we generated $710 million of cash, which
was the net result of $1.47 billion generated from
operating activities, $355 million used in investing
activities, and $405 million used in financing activities.

Cash generated from operating activities of continuing
operations totaled $1.44 billion for fiscal 2010 as
compared to $987 million generated in fiscal 2009,
reflecting increased income from continuing operations in fiscal
2010 and successful execution of our working capital management
initiatives. Improvement in our accounts payable and inventory
balances reflect the impact of our working capital initiatives
as well as lower commodity costs in our flour milling business.
The
year-over-year
improvement in operating cash flows also reflects lower
incentive payments made in fiscal 2010 (earned in fiscal 2009),
than those made in fiscal 2009. We also contributed
$123 million to our Company-sponsored pension plans in
fiscal 2010. Also included in cash generated from operating
activities of continuing operations are insurance advances of
$50 million for reimbursement of
out-of-pocket
expenses and foregone profits associated with the Garner, North
Carolina accident. Cash generated from operating activities of
discontinued operations was $30 million in fiscal 2010,
primarily reflecting income from operations of the discontinued
Gilroy Foods &
Flavorstm
dehydrated vegetable business and reduced inventory balances
within that business. Cash used in operating activities of
discontinued operations was $863 million in fiscal 2009,
primarily due to the increase in commodity inventory balances
and derivative assets in the trading and merchandising business
during the brief period we held that business prior to its
divestiture in June 2008.

Cash used in investing activities of continuing operations
totaled $353 million in fiscal 2010 and $461 million
in fiscal 2009. Investing activities of continuing operations in
fiscal 2010 consisted primarily of capital expenditures of
$483 million and acquisitions of businesses and intangibles
(including Elan) totaling $107 million, partially offset by
sales of businesses and brands (including the
Lucks®
brand) of $22 million and sales of property, plant and
equipment of $88 million. Also included in investing
activities of continuing operations in fiscal 2010 was a cash
inflow of $92 million (of the total receipt of
$115 million) representing the payment in full of all
principal and interest due on the first tranche of Notes from
Gavilon, LLC, in advance of the scheduled maturity date (the
remaining $23 million is reflected as cash generated from
operating activities of continuing operations), and insurance
advances of $35 million for the replacement of property,
plant and equipment destroyed in the Garner accident. Investing
activities of continuing operations in fiscal 2009 consisted
primarily of capital expenditures of $430 million and
expenditures of $80 million for acquisition of businesses
and intangible assets. We generated

26

$2.25 billion of cash from investing activities of
discontinued operations in fiscal 2009 from the disposition of
the trading and merchandising business.

Cash used in financing activities totaled $405 million in
fiscal 2010, as compared to cash used in financing activities of
$1.83 billion in fiscal 2009. During fiscal 2010, we paid
dividends of $347 million and repurchased approximately
4 million shares of our common stock for $100 million.
During fiscal 2010, we also received net proceeds of
$55 million from employees exercising stock options and tax
payments related to issuance of stock awards. During fiscal
2009, we repurchased $900 million of our common stock as
part of our share repurchase program, we reduced our short-term
borrowings by $578 million, and paid dividends of
$348 million. We refinanced certain of our long-term debt
in fiscal 2009, issuing $1 billion aggregate principal
amount of senior notes ($500 million maturing in 2014 and
$500 million maturing in 2019.) We repaid $950 million
aggregate principal amount of senior and subordinated notes
throughout the year (net losses of $49 million on the
retirement of debt are also reflected as financing cash
outflows).

We estimate our capital expenditures in fiscal 2011 will be
approximately $525 million, which will be partly offset by
anticipated insurance proceeds related to the Garner accident.
Management believes that existing cash balances, cash flows from
operations, existing credit facilities, and access to capital
markets will provide sufficient liquidity to meet our working
capital needs, planned capital expenditures, and payment of
anticipated quarterly dividends for at least the next twelve
months.

We use off-balance sheet arrangements (e.g., operating leases)
where the sound business principles warrant their use. We
periodically enter into guarantees and other similar
arrangements as part of transactions in the ordinary course of
business. These are described further in Obligations
and Commitments, below.

In September 2008, we formed a potato processing venture, Lamb
Weston BSW, with Ochoa Ag Unlimited Foods, Inc. We provide all
sales and marketing services to the venture. We have determined
that Lamb Weston BSW is a variable interest entity and that we
are the primary beneficiary of the entity. Accordingly, we
consolidate the financial statements of Lamb Weston BSW. We also
consolidate the assets and liabilities of several entities from
which we lease corporate aircraft. Each of these entities has
been determined to be a variable interest entity and we have
been determined to be the primary beneficiary of each of these
entities.

Due to the consolidation of the variable interest entities, we
reflected in our balance sheets (in millions):

May 30,

May 31,

2010

2009

Cash

$



$

1.2

Receivables, net

16.9

12.6

Inventories

1.4

3.1

Prepaid expenses and other current assets

0.3

0.1

Property, plant and equipment, net

96.5

100.5

Goodwill

18.8

18.6

Brands, trademarks and other intangibles, net

9.8

10.6

Total assets

$

143.7

$

146.7

Current installments of long-term debt

$

6.4

$

6.1

Accounts payable

12.2

4.3

Accrued payroll

0.3

0.2

Other accrued liabilities

0.7

0.7

Senior long-term debt, excluding current installments

76.8

83.3

Other noncurrent liabilities (minority interest)

24.8

27.3

Total liabilities

$

121.2

$

121.9

The liabilities recognized as a result of consolidating Lamb
Weston BSW do not represent additional claims on our general
assets. The creditors of Lamb Weston BSW have claims only on the
assets of the specific variable

27

interest entity to which they have advanced credit. The assets
recognized as a result of consolidating Lamb Weston BSW are the
property of the venture and are not available to us for any
other purpose.

OBLIGATIONS
AND COMMITMENTS

As part of our ongoing operations, we enter into arrangements
that obligate us to make future payments under contracts such as
debt agreements, lease agreements, and unconditional purchase
obligations (i.e., obligations to transfer funds in the future
for fixed or minimum quantities of goods or services at fixed or
minimum prices, such as
take-or-pay
contracts). The unconditional purchase obligation arrangements
are entered into in our normal course of business in order to
ensure adequate levels of sourced product are available. Of
these items, debt and capital lease obligations, which totaled
$3.6 billion as of May 30, 2010, were recognized as
liabilities in our consolidated balance sheet. Operating lease
obligations and unconditional purchase obligations, which
totaled approximately $692 million as of May 30, 2010,
were not recognized as liabilities in our consolidated balance
sheet, in accordance with generally accepted accounting
principles.

A summary of our contractual obligations at the end of fiscal
2010 was as follows (including obligations of discontinued
operations):

Payments Due by Period

($ in millions)

Less than

After 5

Contractual Obligations

Total

1 Year

1-3 Years

3-5 Years

Years

Long-term debt

$

3,529.9

$

255.4

$

394.1

$

585.3

$

2,295.1

Capital lease obligations

64.5

5.4

8.9

6.0

44.2

Operating lease obligations

354.7

63.8

106.6

67.2

117.1

Purchase obligations

337.0

290.2

32.8

5.0

9.0

Total

$

4,286.1

$

614.8

$

542.4

$

663.5

$

2,465.4

We are also contractually obligated to pay interest on our
long-term debt and capital lease obligations. The weighted
average interest rate of the long-term debt obligations
outstanding as of May 30, 2010 was approximately 6.9%.

We consolidate the assets and liabilities of certain entities
that have been determined to be variable interest entities and
for which we have been determined to be the primary beneficiary
of these entities. The amounts reflected in contractual
obligations from long-term debt, in the table above, include
$83 million of liabilities of these variable interest
entities to the creditors of such entities. The long-term debt
recognized as a result of consolidating Lamb Weston BSW entity
does not represent additional claims on our general assets. The
creditors of Lamb Weston BSW have claims only on the assets of
the specific variable interest entity.

The purchase obligations noted in the table above do not reflect
approximately $458 million of open purchase orders, some of
which are not legally binding. These purchase orders will be
settled in the ordinary course of business in less than one year.

As part of our ongoing operations, we also enter into
arrangements that obligate us to make future cash payments only
upon the occurrence of a future event (e.g., guarantee debt or
lease payments of a third party should the third party be unable
to perform). In accordance with generally accepted accounting
principles, the following commercial commitments are not
recognized as liabilities in our consolidated balance sheet. A
summary of our commitments, including commitments associated
with equity method investments, as of the end of fiscal 2010, is
as follows:

Amount of Commitment Expiration per Period

($ in millions)

Less than

After 5

Other Commercial Commitments

Total

1 Year

1-3 Years

3-5 Years

Years

Guarantees

$

92.2

$

35.2

$

10.8

$

12.0

$

34.2

Other Commitments

0.4

0.4







Total

$

92.6

$

35.6

$

10.8

$

12.0

$

34.2

28

In certain limited situations, we will guarantee an obligation
of an unconsolidated entity. We guarantee certain leases and
other commercial obligations resulting from the 2002 divestiture
of our fresh beef and pork operations. The remaining terms of
these arrangements do not exceed six years and the maximum
amount of future payments we have guaranteed was approximately
$16 million as of May 30, 2010. We have also
guaranteed the performance of the divested fresh beef and pork
business with respect to a hog purchase contract. The hog
purchase contract requires the divested fresh beef and pork
business to purchase a minimum of approximately 1.2 million
hogs annually through 2014. The contract stipulates minimum
price commitments, based in part on market prices, and in
certain circumstances also includes price adjustments based on
certain inputs.

We are a party to various potato supply agreements. Under the
terms of certain such potato supply agreements, we have
guaranteed repayment of short-term bank loans of the potato
suppliers, under certain conditions. At May 30, 2010, the
amount of supplier loans effectively guaranteed by us was
approximately $29 million. We have not established a
liability for these guarantees, as we have determined that the
likelihood of our required performance under the guarantees is
remote.

We are a party to a supply agreement with an onion processing
company. We have guaranteed repayment of a portion of a loan of
this supplier, under certain conditions. At May 30, 2010,
the term of the loan is 14 years. The amount of our
guaranty was $25 million as of May 30, 2010. In the
event of default on this loan by the supplier, we have the
contractual right to purchase the loan from the lender, thereby
giving us the rights to underlying collateral. We have not
established a liability in connection with this guaranty, as we
believe the likelihood of financial exposure to us under this
agreement is remote.

Federal income tax credits were generated related to our sweet
potato production facility currently under construction in
Delhi, Louisiana. Third parties invested in certain of these
income tax credits. We have guaranteed these third parties the
face value of these income tax credits over their statutory
lives, a period of seven years, in the event that the income tax
credits are recaptured or reduced. The face value of the income
tax credits was $21 million as of May 30, 2010. We
believe the likelihood of the recapture or reduction of the
income tax credits is remote, and therefore we have not
established a liability in connection with this guarantee.

The obligations and commitments tables above do not include any
reserves for uncertainties in income taxes, as we are unable to
reasonably estimate the ultimate timing of settlement of our
reserves for income taxes. The liability for gross unrecognized
tax benefits at May 30, 2010 was $53 million.

The process of preparing financial statements requires the use
of estimates on the part of management. The estimates used by
management are based on our historical experiences combined with
managements understanding of current facts and
circumstances. Certain of our accounting estimates are
considered critical as they are both important to the portrayal
of our financial condition and results and require significant
or complex judgment on the part of management. The following is
a summary of certain accounting estimates considered critical by
management.

Marketing CostsWe incur certain costs to promote
our products through marketing programs, which include
advertising, customer incentives, and consumer incentives. We
recognize the cost of each of these types of marketing
activities as incurred, in accordance with generally accepted
accounting principles. The judgment required in determining when
marketing costs are incurred can be significant. For
volume-based incentives provided to customers, management must
continually assess the likelihood of the customer achieving the
specified targets. Similarly, for consumer coupons, management
must estimate the level at which coupons will be redeemed by
consumers in the future. Estimates made by management in
accounting for marketing costs are based primarily on our
historical experience with marketing programs with consideration
given to current circumstances and industry trends. As these
factors change, managements estimates could change and we
could recognize different amounts of marketing costs over
different periods of time.

29

During fiscal 2010, we entered into over 120,000 individual
marketing programs with customers and consumers, resulting in
costs in excess of $2.5 billion. These costs are reflected
as a reduction of net sales. Changes in the assumptions used in
estimating the cost of any of the individual customer marketing
programs would not result in a material change in our results of
operations or cash flows.

Income TaxesOur income tax expense is based on our
income, statutory tax rates, and tax planning opportunities
available in the various jurisdictions in which we operate. Tax
laws are complex and subject to different interpretations by the
taxpayer and respective governmental taxing authorities.
Significant judgment is required in determining our income tax
expense and in evaluating our tax positions, including
evaluating uncertainties. Management reviews tax positions at
least quarterly and adjusts the balances as new information
becomes available. Deferred income tax assets represent amounts
available to reduce income taxes payable on taxable income in
future years. Such assets arise because of temporary differences
between the financial reporting and tax bases of assets and
liabilities, as well as from net operating loss and tax credit
carryforwards. Management evaluates the recoverability of these
future tax deductions by assessing the adequacy of future
expected taxable income from all sources, including reversal of
taxable temporary differences, forecasted operating earnings and
available tax planning strategies. These estimates of future
taxable income inherently require significant judgment.
Management uses historical experience and short and long-range
business forecasts to develop such estimates. Further, we employ
various prudent and feasible tax planning strategies to
facilitate the recoverability of future deductions. To the
extent management does not consider it more likely than not that
a deferred tax asset will be recovered, a valuation allowance is
established.

Further information on income taxes is provided in Note 16
to the consolidated financial statements.

Environmental LiabilitiesEnvironmental liabilities
are accrued when it is probable that obligations have been
incurred and the associated amounts can be reasonably estimated.
Management works with independent third-party specialists in
order to effectively assess our environmental liabilities.
Management estimates our environmental liabilities based on
evaluation of investigatory studies, extent of required cleanup,
our known volumetric contribution, other potentially responsible
parties, and our experience in remediating sites. Environmental
liability estimates may be affected by changing governmental or
other external determinations of what constitutes an
environmental liability or an acceptable level of cleanup.
Managements estimate as to our potential liability is
independent of any potential recovery of insurance proceeds or
indemnification arrangements. Insurance companies and other
indemnitors are notified of any potential claims and
periodically updated as to the general status of known claims.
We do not discount our environmental liabilities as the timing
of the anticipated cash payments is not fixed or readily
determinable. To the extent that there are changes in the
evaluation factors identified above, managements estimate
of environmental liabilities may also change.

We have recognized a reserve of approximately $71 million
for environmental liabilities as of May 30, 2010. The
reserve for each site is determined based on an assessment of
the most likely required remedy and a related estimate of the
costs required to effect such remedy. Historically, the
underlying assumptions utilized in estimating this reserve have
been appropriate as actual payments have neither differed
materially from the previously estimated reserve balances, nor
have significant adjustments to this reserve balance been
necessary. In fiscal 2010, based on changes in the regulatory
environment applicable to a particular site, we reduced the
recognized environmental liability by approximately
$15 million.

Employment-Related BenefitsWe incur certain
employment-related expenses associated with pensions,
postretirement health care benefits, and workers
compensation. In order to measure the expense associated with
these employment-related benefits, management must make a
variety of estimates including discount rates used to measure
the present value of certain liabilities, assumed rates of
return on assets set aside to fund these expenses, compensation
increases, employee turnover rates, anticipated mortality rates,
anticipated health care costs, and employee accidents incurred
but not yet reported to us. The estimates used by management are
based on our historical experience as well as current facts and
circumstances. We use third-party specialists to assist
management in appropriately measuring the expense associated
with these employment-related benefits. Different estimates used
by management could result in us recognizing different amounts
of expense over different periods of time. We had recognized a
pension liability of

30

$470 million and $317 million, a postretirement
liability of $321 million and $281 million, and a
workers compensation liability of $73 million and
$76 million, as of the end of fiscal 2010 and 2009,
respectively.

We recognized pension expense from Company plans of
$47 million, $38 million, and $56 million in
fiscal years 2010, 2009, and 2008, respectively, which reflected
expected returns on plan assets of $161 million,
$159 million, and $149 million, respectively. We
contributed $123 million, $112 million, and
$8 million to our pension plans in fiscal years 2010, 2009,
and 2008, respectively. We anticipate contributing approximately
$116 million to our pension plans in fiscal 2011.

One significant assumption for pension plan accounting is the
discount rate. We select a discount rate each year (as of our
fiscal year-end measurement date for fiscal 2009 and thereafter)
for our plans based upon a hypothetical bond portfolio for which
the cash flows from coupons and maturities match the
year-by-year
projected benefit cash flows for our pension plans. The
hypothetical bond portfolio is comprised of high-quality fixed
income debt instruments (usually Moodys Aa) available at
the measurement date. Based on this information, the discount
rate selected by us for determination of pension expense was
6.9% for fiscal year 2010, 6.6% for fiscal 2009, and 5.75% for
fiscal 2008. We selected a discount rate of 5.8% for
determination of pension expense for fiscal 2011. A
25 basis point increase in our discount rate assumption as
of the beginning of fiscal 2010 would decrease pension expense
for our pension plans by $1.6 million for the year. A
25 basis point decrease in our discount rate assumption as
of the beginning of fiscal 2010 would increase pension expense
for our pension plans by $1.7 million for the year. A
25 basis point increase in the discount rate would decrease
pension expense by approximately $8.3 million for fiscal
2011. A 25 basis point decrease in the discount rate would
increase pension expense by approximately $8.9 million for
fiscal 2011. For our year-end pension obligation determination,
we selected a discount rate of 5.8% and 6.9% for fiscal years
2010 and 2009, respectively.

Another significant assumption used to account for our pension
plans is the expected long-term rate of return on plan assets.
In developing the assumed long-term rate of return on plan
assets for determining pension expense, we consider long-term
historical returns (arithmetic average) of the plans
investments, the asset allocation among types of investments,
estimated long-term returns by investment type from external
sources, and the current economic environment. Based on this
information, we selected 7.75% for the long-term rate of return
on plan assets for determining our fiscal 2010 pension expense.
A 25 basis point increase/decrease in our expected
long-term rate of return assumption as of the beginning of
fiscal 2010 would decrease/increase annual pension expense for
our pension plans by approximately $5 million. We selected
an expected rate of return on plan assets of 7.75% to be used to
determine our pension expense for fiscal 2011. A 25 basis
point increase/decrease in our expected long-term rate of return
assumption as of the beginning of fiscal 2011 would
decrease/increase annual pension expense for our pension plans
by approximately $5 million.

When calculating expected return on plan assets for pension
plans, we use a market-related value of assets that spreads
asset gains and losses (differences between actual return and
expected return) over five years. The market-related value of
assets used in the calculation of expected return on plan assets
for fiscal 2010 was $232 million higher than the actual
fair value of plan assets.

The rate of compensation increase is another significant
assumption used in the development of accounting information for
pension plans. We determine this assumption based on our
long-term plans for compensation increases and current economic
conditions. Based on this information, we selected 4.25% for
fiscal years 2010 and 2009 as the rate of compensation increase
for determining our year-end pension obligation. We selected
4.25% for the rate of compensation increase for determination of
pension expense for fiscal 2010, 2009, and 2008. A 25 basis
point increase in our rate of compensation increase assumption
as of the beginning of fiscal 2010 would increase pension
expense for our pension plans by approximately $1 million
for the year. A 25 basis point decrease in our rate of
compensation increase assumption as of the beginning of fiscal
2010 would decrease pension expense for our pension plans by
approximately $1 million for the year. We selected a rate
of 4.25% for the rate of compensation increase to be used to
determine our pension expense for fiscal 2011. A 25 basis
point increase/decrease in our rate of compensation increase
assumption as of the beginning of fiscal 2011 would
increase/decrease pension expense for our pension plans by
approximately $1 million for the year.

We also provide certain postretirement health care benefits. We
recognized postretirement benefit expense of $9 million,
$15 million, and $23 million in fiscal 2010, 2009, and
2008, respectively. We reflected liabilities of

31

$321 million and $281 million in our balance sheets as
of May 30, 2010 and May 31, 2009, respectively. We
anticipate contributing approximately $36 million to our
postretirement health care plans in fiscal 2011.

The postretirement benefit expense and obligation are also
dependent on our assumptions used for the actuarially determined
amounts. These assumptions include discount rates (discussed
above), health care cost trend rates, inflation rates,
retirement rates, mortality rates, and other factors. The health
care cost trend assumptions are developed based on historical
cost data, the near-term outlook, and an assessment of likely
long-term trends. Assumed inflation rates are based on an
evaluation of external market indicators. Retirement and
mortality rates are based primarily on actual plan experience.
The discount rate we selected for determination of
postretirement expense was 6.6% for fiscal year 2010, 6.4% for
fiscal 2009, and 5.5% for fiscal 2008. We have selected a
discount rate of 5.4% for determination of postretirement
expense for fiscal 2011. A 25 basis point increase/decrease
in our discount rate assumption as of the beginning of fiscal
2010 would not have resulted in a material change to
postretirement expense for our plans. We have assumed the
initial year increase in cost of health care to be 8.0%, with
the trend rate decreasing to 5.0% by 2016. A one percentage
point change in the assumed health care cost trend rate would
have the following effect:

One Percent

One Percent

($ in millions)

Increase

Decrease

Effect on total service and interest cost

$

1

$

(1

)

Effect on postretirement benefit obligation

21

(20

)

We provide workers compensation benefits to our employees.
The measurement of the liability for our cost of providing these
benefits is largely based upon actuarial analysis of costs. One
significant assumption we make is the discount rate used to
calculate the present value of our obligation. The discount rate
used at May 30, 2010 was 3.75%. A 25 basis point
increase/decrease in the discount rate assumption would not have
a material impact on workers compensation expense.

Impairment of Long-Lived Assets (including property, plant
and equipment), Goodwill and Identifiable Intangible
AssetsWe reduce the carrying amounts of long-lived
assets, goodwill and identifiable intangible assets to their
fair values when the fair value of such assets is determined to
be less than their carrying amounts (i.e., assets are deemed to
be impaired). Fair value is typically estimated using a
discounted cash flow analysis, which requires us to estimate the
future cash flows anticipated to be generated by the particular
asset(s) being tested for impairment as well as to select a
discount rate to measure the present value of the anticipated
cash flows. When determining future cash flow estimates, we
consider historical results adjusted to reflect current and
anticipated operating conditions. Estimating future cash flows
requires significant judgment by management in such areas as
future economic conditions, industry-specific conditions,
product pricing, and necessary capital expenditures. The use of
different assumptions or estimates for future cash flows could
produce different impairment amounts (or none at all) for
long-lived assets, goodwill, and identifiable intangible assets.

We utilize a relief from royalty methodology in
evaluating impairment of our indefinite lived brands/trademarks.
The methodology determines the fair value of each brand through
use of a discounted cash flow model that incorporates an
estimated royalty rate we would be able to charge a
third party for the use of the particular brand. When
determining the future cash flow estimates, we must estimate
future net sales and a fair market royalty rate for each
applicable brand and an appropriate discount rate to measure the
present value of the anticipated cash flows. Estimating future
net sales requires significant judgment by management in such
areas as future economic conditions, product pricing, and
consumer trends.

In determining an appropriate discount rate to apply to the
estimated future cash flows, we consider the current interest
rate environment and our estimated cost of capital. As the
calculated fair value of our goodwill and other identifiable
intangible assets generally significantly exceeds the carrying
amount of these assets, a one percentage point increase in the
discount rate assumptions used to estimate the fair values of
our goodwill and other identifiable intangible assets would not
result in a material impairment charge.

In June 2009, the Financial Accounting Standards Board issued
guidance that requires an enterprise to perform an analysis to
determine whether the enterprises variable interest or
interests give it a controlling financial interest in a

32

variable interest entity. This analysis identifies the primary
beneficiary of a variable interest entity as the enterprise that
has both of the following characteristics: the power to direct
the activities of a variable interest entity that most
significantly impact the entitys economic performance, and
the obligation to absorb losses of the entity that could
potentially be significant to the variable interest entity or
the right to receive benefits from the entity that could
potentially be significant to the variable interest entity. The
provisions of this guidance are effective as of the beginning of
our fiscal 2011. Earlier application is prohibited. We are
currently evaluating the impact of adopting this guidance.

RELATED-PARTY
TRANSACTIONS

From time to time, one of our business units has engaged an
environmental and agricultural engineering services firm. The
firm is a subsidiary of an entity whose chief executive officer
serves on our Board of Directors. Payments to this firm for
environmental and agricultural engineering services and
structures acquired totaled $0.3 million and
$0.4 million in fiscal 2010 and fiscal 2009, respectively.

This report, including Managements Discussion and Analysis
of Financial Condition and Results of Operations, contains
forward-looking statements. These statements are based on
managements current views and assumptions of future events
and financial performance and are subject to uncertainty and
changes in circumstances. Readers of this report should
understand that these statements are not guarantees of
performance or results. Many factors could affect our actual
financial results and cause them to vary materially from the
expectations contained in the forward-looking statements,
including those set forth in this report. These factors include,
among other things, availability and prices of raw materials;
the impact of the accident at the Garner, North Carolina
manufacturing facility, including the ultimate costs incurred
and the amounts received under insurance policies; product
pricing; future economic circumstances; industry conditions; our
ability to execute our operating plans; the success of our
innovation, marketing and cost-savings initiatives; the
competitive environment and related market conditions; operating
efficiencies; the ultimate impact of recalls; access to capital;
actions of governments and regulatory factors affecting our
businesses, including the Patient Protection and Affordable Care
Act; the amount and timing of repurchases of our common stock,
if any; and other risks described in our reports filed with the
Securities and Exchange Commission. We caution readers not to
place undue reliance on any forward-looking statements included
in this report, which speak only as of the date of this report.

ITEM 7A.

QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The principal market risks affecting us during fiscal 2010 and
2009 were exposures to price fluctuations of commodity and
energy inputs, interest rates, and foreign currencies. These
fluctuations impacted all reporting segments, as well as our
trading and merchandising activities, which are presented as
discontinued operations for all periods presented in our
financial statements.

CommoditiesWe purchase commodity inputs such as
wheat, corn, oats, soybean meal, soybean oil, meat, dairy
products, sugar, natural gas, electricity, and packaging
materials to be used in our operations. These commodities are
subject to price fluctuations that may create price risk. We
enter into commodity hedges to manage this price risk using
physical forward contracts or derivative instruments. We have
policies governing the hedging instruments our businesses may
use. These policies include limiting the dollar risk exposure
for each of our businesses. We also monitor the amount of
associated counter-party credit risk for all non-exchange-traded
transactions. In addition, during our ownership of the trading
and merchandising business (divested during quarter one of
fiscal 2009), we purchased and sold certain commodities, such as
wheat, corn, soybeans, soybean meal, soybean oil, oats, natural
gas, and crude oil (presented in discontinued operations).

The following table presents one measure of market risk exposure
using sensitivity analysis. Sensitivity analysis is the
measurement of potential loss of fair value resulting from a
hypothetical change of 10% in market prices. Actual changes in
market prices may differ from hypothetical changes. In practice,
as markets move, we actively manage our risk and adjust hedging
strategies as appropriate.

Fair value was determined using quoted market prices and was
based on our net derivative position by commodity at each
quarter-end during the fiscal year.

33

The market risk exposure analysis excludes the underlying
commodity positions that are being hedged. The values of
commodities hedged have a high inverse correlation to price
changes of the derivative commodity instrument.

Effect of 10% change in market prices:

(in millions)

2010

2009

Processing Activities

Grains

High

$

9

$

14

Low

2

5

Average

6

10

Energy

High

7

6

Low

5

2

Average

6

4

Interest RatesWe may use interest rate swaps to
manage the effect of interest rate changes on the fair value of
our existing debt as well as the forecasted interest payments
for the anticipated issuance of debt. During the fourth quarter
of fiscal 2010, we entered into interest rate swap contracts
used to hedge the fair value of certain of our senior long-term
debt. The maximum potential loss from a hypothetical change of
1% in interest rates was approximately $24 million. At the
end of fiscal 2009, we did not have any interest rate swap
agreements outstanding.

As of May 30, 2010 and May 31, 2009, the fair value of
our fixed rate debt was estimated at $4.1 billion and
$3.7 billion, respectively, based on current market rates
primarily provided by outside investment advisors. As of
May 30, 2010 and May 31, 2009, a one percentage point
increase in interest rates would decrease the fair value of our
fixed rate debt by approximately $234 million and
$196 million, respectively, while a one percentage point
decrease in interest rates would increase the fair value of our
fixed rate debt by approximately $256 million and
$307 million, respectively.

Foreign OperationsIn order to reduce exposures
related to changes in foreign currency exchange rates, we may
enter into forward exchange or option contracts for transactions
denominated in a currency other than the functional currency for
certain of our processing operations. This activity primarily
relates to hedging against foreign currency risk in purchasing
inventory, capital equipment, sales of finished goods, and
future settlement of foreign denominated assets and liabilities.

The following table presents one measure of market risk exposure
using sensitivity analysis for our processing operations.
Sensitivity analysis is the measurement of potential loss of
fair value resulting from a hypothetical change of 10% in
exchange rates. Actual changes in exchange rates may differ from
hypothetical changes.

Fair value was determined using quoted exchange rates and was
based on our net foreign currency position at each quarter-end
during the fiscal year.

The market risk exposure analysis excludes the underlying
foreign denominated transactions that are being hedged. The
currencies hedged have a high inverse correlation to exchange
rate changes of the foreign currency derivative instrument.

Fiscal YearThe fiscal year of ConAgra Foods,
Inc. (ConAgra Foods, Company,
we, us, or our) ends the
last Sunday in May. The fiscal years for the consolidated
financial statements presented consist of 52-week periods for
fiscal years 2010 and 2008 and a 53-week period for fiscal year
2009.

Basis of ConsolidationThe consolidated
financial statements include the accounts of ConAgra Foods, Inc.
and all majority-owned subsidiaries. In addition, the accounts
of all variable interest entities for which we have been
determined to be the primary beneficiary are included in our
consolidated financial statements from the date such
determination is made. All significant intercompany investments,
accounts, and transactions have been eliminated.

Investments in Unconsolidated AffiliatesThe
investments in and the operating results of 50%-or-less-owned
entities not required to be consolidated are included in the
consolidated financial statements on the basis of the equity
method of accounting or the cost method of accounting, depending
on specific facts and circumstances.

We review our investments in unconsolidated affiliates for
impairment whenever events or changes in business circumstances
indicate that the carrying amount of the investments may not be
fully recoverable. Evidence of a loss in value that is other
than temporary might include the absence of an ability to
recover the carrying amount of the investment, the inability of
the investee to sustain an earnings capacity which would justify
the carrying amount of the investment, or, where applicable,
estimated sales proceeds which are insufficient to recover the
carrying amount of the investment. Managements assessment
as to whether any decline in value is other than temporary is
based on our ability and intent to hold the investment and
whether evidence indicating the carrying value of the investment
is recoverable within a reasonable period of time outweighs
evidence to the contrary. Management generally considers our
investments in equity method investees to be strategic long-term
investments. Therefore, management completes its assessments
with a long-term viewpoint. If the fair value of the investment
is determined to be less than the carrying value and the decline
in value is considered to be other than temporary, an
appropriate write-down is recorded based on the excess of the
carrying value over the best estimate of fair value of the
investment.

Cash and Cash EquivalentsCash and all highly
liquid investments with an original maturity of three months or
less at the date of acquisition, including short-term time
deposits and government agency and corporate obligations, are
classified as cash and cash equivalents.

InventoriesWe principally use the lower of
cost (determined using the
first-in,
first-out method) or market for valuing inventories other than
merchandisable agricultural commodities. Grain, flour, and major
feed ingredient inventories are principally stated at market
value.

Property, Plant and EquipmentProperty, plant
and equipment are carried at cost. Depreciation has been
calculated using primarily the straight-line method over the
estimated useful lives of the respective classes of assets as
follows:

Land improvements

1 - 40 years

Buildings

15 - 40 years

Machinery and equipment

3 - 20 years

Furniture, fixtures, office equipment, and other

5 - 15 years

We review property, plant and equipment for impairment whenever
events or changes in business circumstances indicate that the
carrying amount of the assets may not be fully recoverable.
Recoverability of an asset considered
held-and-used
is determined by comparing the carrying amount of the asset to
the undiscounted net cash flows expected to be generated from
the use of the asset. If the carrying amount is greater than the
undiscounted net cash flows expected to be generated by the
asset, the assets carrying amount is reduced to its
estimated fair value. An asset considered
held-for-sale
is reported at the lower of the assets carrying amount or
fair value.

40

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

Goodwill and Other Identifiable Intangible
AssetsGoodwill and other identifiable intangible
assets with indefinite lives (e.g., brands or trademarks) are
not amortized and are tested annually for impairment of value
and whenever events or changes in circumstances indicate the
carrying amount of the asset may be impaired. Impairment of
identifiable intangible assets with indefinite lives occurs when
the fair value of the asset is less than its carrying amount. If
impaired, the assets carrying amount is reduced to its
fair value. Goodwill is evaluated using a two-step impairment
test at a reporting unit level. A reporting unit can be an
operating segment or a business within an operating segment. The
first step of the test compares the carrying value of a
reporting unit, including goodwill, with its fair value. We
estimate the fair value using level 3 inputs as defined by
the fair value hierarchy. Refer to Note 21 for the
definition of the levels in the fair value hierarchy. The inputs
used to calculate the fair value include a number of subjective
factors, such as (a) estimates of future cash flows,
(b) estimates of our future cost structure,
(c) discount rates for our estimated cash flows,
(d) required level of working capital, (e) assumed
terminal value and (f) time horizon of cash flow forecasts.
If the carrying value of a reporting unit exceeds its fair
value, we complete the second step of the test to determine the
amount of goodwill impairment loss to be recognized. In the
second step, we estimate an implied fair value of the reporting
units goodwill by allocating the fair value of the
reporting unit to all of the assets and liabilities other than
goodwill (including any unrecognized intangible assets). The
impairment loss is equal to the excess of the carrying value of
the goodwill over the implied fair value of that goodwill. Our
annual impairment testing is performed during the fourth quarter
using a discounted cash flow-based methodology.

Identifiable intangible assets with definite lives (e.g.,
licensing arrangements with contractual lives or customer
relationships) are amortized over their estimated useful lives
and tested for impairment whenever events or changes in
circumstances indicate the carrying amount of the asset may be
impaired. Identifiable intangible assets that are subject to
amortization are evaluated for impairment using a process
similar to that used in evaluating elements of property, plant
and equipment. If impaired, the asset is written down to its
fair value.

Environmental LiabilitiesEnvironmental
liabilities are accrued when it is probable that obligations
have been incurred and the associated amounts can be reasonably
estimated. We use third-party specialists to assist management
in appropriately measuring the obligations associated with
environmental liabilities. Such liabilities are adjusted as new
information develops or circumstances change. We do not discount
our environmental liabilities as the timing of the anticipated
cash payments is not fixed or readily determinable.
Managements estimate of our potential liability is
independent of any potential recovery of insurance proceeds or
indemnification arrangements. We have not reduced our
environmental liabilities for potential insurance recoveries.

Employment-Related
BenefitsEmployment-related benefits associated
with pensions, postretirement health care benefits, and
workers compensation are expensed as such obligations are
incurred. The recognition of expense is impacted by estimates
made by management, such as discount rates used to value these
liabilities, future health care costs, and employee accidents
incurred but not yet reported. We use third-party specialists to
assist management in appropriately measuring the obligations
associated with employment-related benefits.

Revenue RecognitionRevenue is recognized
when title and risk of loss are transferred to customers upon
delivery based on terms of sale and collectibility is reasonably
assured. Revenue is recognized as the net amount to be received
after deducting estimated amounts for discounts, trade
allowances, and returns of damaged and
out-of-date
products. Changes in the market value of inventories of
merchandisable agricultural commodities, forward cash purchase
and sales contracts, and exchange-traded futures and options
contracts are recognized in earnings immediately.

Shipping and HandlingAmounts billed to
customers related to shipping and handling are included in net
sales. Shipping and handling costs are included in cost of goods
sold.

41

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

Marketing CostsWe promote our products with
advertising, consumer incentives, and trade promotions. Such
programs include, but are not limited to, discounts, coupons,
rebates, and volume-based incentives. Advertising costs are
expensed as incurred. Consumer incentives and trade promotion
activities are recorded as a reduction of revenue or as a
component of cost of goods sold based on amounts estimated as
being due to customers and consumers at the end of the period,
based principally on historical utilization and redemption
rates. Advertising and promotion expenses totaled
$409.3 million, $380.7 million, and
$376.7 million in fiscal 2010, 2009, and 2008,
respectively, and are included in selling, general and
administrative expenses.

Research and DevelopmentWe incurred expenses
of $77.9 million, $78.0 million, and
$66.5 million for research and development activities in
fiscal 2010, 2009, and 2008, respectively.

Comprehensive IncomeComprehensive
income includes net income, currency translation adjustments,
certain derivative-related activity, changes in the value of
available-for-sale
investments, and changes in prior service cost and net actuarial
gains/losses from pension and postretirement health care plans.
We generally deem our foreign investments to be essentially
permanent in nature and, as such, we do not provide for taxes on
currency translation adjustments arising from converting the
investment in a foreign currency to U.S. dollars. When we
determine that a foreign investment is no longer permanent in
nature, estimated taxes are provided for the related deferred
taxes, if any, resulting from currency translation adjustments.
We reclassified $2.0 million of foreign currency
translation net losses to net income due to the disposal or
substantial liquidation of foreign subsidiaries and equity
method investments in fiscal 2009.

The following is a rollforward of the balances in accumulated
other comprehensive income (loss), net of tax (except for
currency translation adjustment):

Unrealized Gain

(Loss) on

Currency

Available-

Translation

Net

For-Sale

Adjustment,

Derivative

Securities, Net

Accumulated

Net of

Adjustment, Net

of

Pension and

Other

Reclassification

of Reclassification

Reclassification

Postretirement

Comprehensive

Adjustments

Adjustments

Adjustments

Adjustments

Income (Loss)

Balance at May 27, 2007

61.4

4.4

3.1

(74.8

)

(5.9

)

Current-period change

61.3

(4.9

)

(4.2

)

240.2

292.4

Balance at May 25, 2008

122.7

(0.5

)

(1.1

)

165.4

286.5

Current-period change

(70.1

)

(0.7

)

(0.1

)

(319.3

)

(390.2

)

Balance at May 31, 2009

52.6

(1.2

)

(1.2

)

(153.9

)

(103.7

)

Current-period change

(3.7

)

0.2



(178.1

)

(181.6

)

Balance at May 30, 2010

$

48.9

$

(1.0

)

$

(1.2

)

$

(332.0

)

$

(285.3

)

The following details the income tax expense (benefit) on
components of other comprehensive income (loss):

Use of EstimatesPreparation of financial
statements in conformity with generally accepted accounting
principles requires management to make estimates and
assumptions. These estimates and assumptions affect reported
amounts of assets, liabilities, revenues, and expenses as
reflected in the consolidated financial statements. Actual
results could differ from these estimates.

ReclassificationsCertain prior year amounts
have been reclassified to conform with current year presentation.

Accounting ChangesIn December 2007, the
Financial Accounting Standards Board (FASB) issued
guidance on noncontrolling interests in consolidated financial
statements. This guidance establishes accounting and reporting
standards for the noncontrolling interest (minority interest) in
a subsidiary and for the deconsolidation of a subsidiary. This
guidance requires that noncontrolling interests in subsidiaries
be reported as a component of stockholders equity in the
consolidated balance sheets. However, securities of an issuer
that are redeemable at the option of the holder continue to be
classified outside stockholders equity. The noncontrolling
interest holder in the potato processing venture, Lamb Weston
BSW, LLC (Lamb Weston BSW or the
venture), has the contractual right to put its
equity interest to us at a future date. Accordingly, the
noncontrolling interest in this venture is classified within
other noncurrent liabilities in our consolidated balance sheets.
This guidance also requires that earnings or losses attributed
to the noncontrolling interests be reported as part of
consolidated earnings and not as a separate component of income
or expense and requires disclosure of the attribution of
consolidated earnings to the controlling and noncontrolling
interests on the face of the consolidated statement of earnings.
We adopted the provisions of this guidance on a prospective
basis, except for the presentation and disclosure requirements,
as of the beginning of our fiscal 2010. We adopted the
presentation and disclosure requirements of this guidance
retrospectively in fiscal 2010.

In December 2007, the FASB issued guidance on business
combinations that establishes principles and requirements for
how an acquirer in a business combination recognizes and
measures the assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. We adopted the
provisions of this guidance for our business combinations
occurring on or after June 1, 2009.

In June 2008, the FASB issued guidance which provides that
unvested share-based payment awards that contain nonforfeitable
rights to dividends or dividend equivalents are participating
securities and must be included in the computation of earnings
per share under the two-class method. This guidance was
effective as of the beginning of our fiscal 2010. The adoption
of this guidance did not have a material impact on our financial
statements.

In September 2006, the FASB issued guidance for fair value
measurements, which defines fair value, establishes a framework
for measuring fair value, and expands disclosures about fair
value measurements. This guidance was effective as of the
beginning of our fiscal 2009 for our financial assets and
liabilities, as well as for other assets and liabilities that
are carried at fair value on a recurring basis in our
consolidated financial statements. As of the beginning of fiscal
2010, we adopted additional new guidance relating to
nonrecurring fair value measurement requirements for
nonfinancial assets and liabilities. The adoption did not have a
material impact on the consolidated financial statements.

Recently Issued Accounting PronouncementsIn
June 2009, the FASB issued guidance that requires an enterprise
to perform an analysis to determine whether the
enterprises variable interest or interests give it a
controlling financial interest in a variable interest entity.
This analysis identifies the primary beneficiary of a variable
interest entity as the enterprise that has both of the following
characteristics: the power to direct the activities of a
variable interest entity that most significantly impact the
entitys economic performance, and the obligation to absorb
losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits
from the entity that could potentially be significant to the
variable interest entity. The provisions

43

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

of this guidance are effective as of the beginning of our fiscal
2011. Earlier application is prohibited. We are currently
evaluating the impact of adopting this guidance.

2.

DISCONTINUED
OPERATIONS AND DIVESTITURES

Gilroy
Foods &
FlavorstmOperations

In July 2010, subsequent to the end of our fiscal 2010, we
completed the sale of substantially all of the assets of
Gilroy Foods &
Flavorstm
dehydrated garlic, onion, capsicum and Controlled
Moisturetm,
GardenFrost®,
Redi-Madetm,
and fresh vegetable operations for $250 million in cash,
subject to final working capital adjustments. Based on our
estimate of proceeds from the sale of this business, we
recognized impairment and related charges totaling
$59 million ($40 million after-tax) in the fourth
quarter of fiscal 2010. We reflected the results of these
operations as discontinued operations for all periods presented.
The assets and liabilities of the discontinued Gilroy
Foods &
Flavorstm
dehydrated vegetable business have been reclassified as assets
and liabilities held for sale within our consolidated balance
sheets for all periods presented.

In June 2009, we completed the divestiture of the
Fernandos®
foodservice brand for proceeds of approximately
$6.4 million in cash. Based on our estimate of proceeds
from the sale of this business, we recognized impairment charges
totaling $8.9 million in the fourth quarter of fiscal 2009.
We reflected the results of these operations as discontinued
operations for all periods presented. The assets and liabilities
of the divested
Fernandos®
business have been reclassified as assets and liabilities held
for sale within our consolidated balance sheets for all periods
prior to the divestiture.

On March 27, 2008, we entered into an agreement with
affiliates of Ospraie Special Opportunities Fund to sell our
commodity trading and merchandising operations conducted by
ConAgra Trade Group (previously principally reported as the
Trading and Merchandising segment). The operations included the
domestic and international grain merchandising, fertilizer
distribution, agricultural and energy commodities trading and
services, and grain, animal, and oil seed byproducts
merchandising and distribution business. In June 2008, the sale
of the trading and merchandising operations was completed for
before-tax proceeds of: 1) approximately $2.2 billion
in cash, net of transaction costs (including incentive
compensation amounts due to employees due to accelerated
vesting), 2) $550 million (face value) of
payment-in-kind
debt securities issued by the purchaser (the Notes)
which were recorded at an initial estimated fair value of
$479 million, 3) a short-term receivable of
$37 million due from the purchaser, and 4) a four-year
warrant to acquire approximately 5% of the issued common equity
of the parent company of the divested operations, which has been
recorded at an estimated fair value of $1.8 million. We
recognized an after-tax gain on the disposition of approximately
$301 million in fiscal 2009.

During fiscal 2009, we collected the $37 million short-term
receivable due from the purchaser. See Note 4 for further
discussion on the Notes.

We reflected the results of the divested trading and
merchandising operations as discontinued operations for all
periods presented. The assets and liabilities of the divested
trading and merchandising operations have been classified as
assets and liabilities held for sale within our consolidated
balance sheets for all periods prior to the divestiture.

During the fourth quarter of fiscal 2008, we completed the
divestiture of the Knotts Berry
Farm®
(Knotts) jams and jellies brand and operations
for proceeds of approximately $55 million, resulting in no
significant gain or loss. We reflected the results of these
operations as discontinued operations for all periods presented.

The results of the aforementioned businesses which have been
divested are included within discontinued operations. The
summary comparative financial results of discontinued operations
were as follows:

2010

2009

2008

Net sales

$

290.8

$

554.7

$

2,560.5

Long-lived asset impairment charge

(58.3

)

(8.9

)



Income (loss) from operations of discontinued operations before
income taxes

(42.3

)

101.7

706.2

Net gain from disposal of businesses



490.0

7.0

Income (loss) before income taxes

(42.3

)

591.7

713.2

Income tax (expense) benefit

20.8

(230.5

)

(273.7

)

Income (loss) from discontinued operations, net of tax

$

(21.5

)

$

361.2

$

439.5

The effective tax rate for discontinued operations varies
significantly from the statutory rate in certain years due to
the non-deductibility of a portion of the goodwill of divested
businesses, and changes in estimates of income taxes.

In February 2010, we completed the sale of our
Lucks®
brand for proceeds of approximately $22.0 million,
resulting in a pre-tax gain of approximately $14.3 million
($9.0 million after-tax), reflected in selling, general and
administrative expenses.

In July 2008, we completed the sale of our
Pemmican®
beef jerky business for proceeds of approximately
$29.4 million in cash, resulting in a pre-tax gain of
approximately $19.4 million ($10.6 million after-tax),
reflected in selling, general and administrative expenses. Due
to our continuing involvement with the business, the results of
operations of the
Pemmican®
business have not been reclassified as discontinued operations.

3.

ACQUISITIONS

On April 12, 2010, we acquired Elan Nutrition, Inc.
(Elan) for approximately $103 million in cash
plus assumed liabilities. Approximately $66 million of the
purchase price was allocated to goodwill and approximately
$34 million was allocated to brands, trademarks and other
intangibles. This business is included in the Consumer Foods
segment.

During fiscal 2009, we completed various individually immaterial
acquisitions of businesses and other identifiable intangible
assets for approximately $22 million in cash plus assumed
liabilities. Approximately $5 million of the purchase price
was allocated to brands, trademarks and other intangibles.

On February 25, 2008, we acquired Watts Brothers, a
privately held group which has farming, processing, and
warehousing operations for approximately $132 million in
cash plus assumed liabilities of approximately
$101 million. Approximately $20 million of the
purchase price was allocated to goodwill. The Watts Brothers
operations are included in the Commercial Foods segment.

On September 22, 2008, we acquired a 49.99% interest in
Lamb Weston BSW, LLC (Lamb Weston BSW or the
venture), a potato processing joint venture with
Ochoa Ag Unlimited Foods, Inc. (Ochoa), for
approximately $46 million in cash. Lamb Weston BSW
subsequently distributed $20 million of our initial
investment to us. This venture is considered a variable interest
entity and is consolidated in our financial statements (see
Note 7). Approximately $19 million of the purchase
price was allocated to goodwill and approximately
$11 million was allocated to brands, trademarks and other
intangibles. This business is included in the Commercial Foods
segment.

On July 23, 2007, we acquired Alexia Foods, Inc.
(Alexia Foods), a privately held natural food
company headquartered in Long Island City, New York, for
approximately $50 million in cash plus assumed liabilities.
Alexia Foods offers premium natural and organic food items
including potato products, appetizers, and artisan breads.
Approximately $34 million of the purchase price was
allocated to goodwill and $19 million to brands, trademarks
and other intangible assets. The business is included in our
Consumer Foods segment.

On September 5, 2007, we acquired Lincoln Snacks Holding
Company, Inc. (Lincoln Snacks), a privately held
company located in Lincoln, Nebraska, for approximately
$50 million in cash plus assumed liabilities. Lincoln
Snacks offers a variety of snack food brands and private label
products. Approximately $20 million of the purchase price
was allocated to goodwill and $17 million to brands,
trademarks and other intangible assets. The business is included
in the Consumer Foods segment.

On October 21, 2007, we acquired manufacturing assets of
Twin City Foods, Inc., a potato processing business, for
approximately $23 million in cash. These operations are
included in the Commercial Foods segment.

Under the acquisition method of accounting, the assets acquired
and liabilities assumed in these acquisitions were recorded at
their respective estimated fair values at the date of
acquisition. The fair values of the assets and liabilities
related to the acquisition of Elan is subject to refinement as
we complete our analyses relative to the fair values at the
respective acquisition dates.

46

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

The pro forma effect of the acquisitions mentioned above was not
material.

In June 2010, subsequent to the end of our fiscal 2010, we
acquired the assets of American Pie, LLC, a manufacturer of
frozen fruit pies, thaw and serve pies, fruit cobblers, and pie
crusts under the licensed Marie
Callenders®
and Claim
Jumper®
trade names, as well as frozen dinners, pot pies, and appetizers
under the Claim
Jumper®
trade name. This business is included in the Consumer Foods
segment.

4.

PAYMENT-IN-KIND
NOTES RECEIVABLE

In connection with the divestiture of the trading and
merchandising operations, we received the Notes described in
Note 2 that were recorded at an initial estimated fair
value of $479 million.

The Notes were issued in three tranches: $99,990,000 original
principal amount of 10.5% notes due June 19, 2010;
$200,035,000 original principal amount of 10.75% notes due
June 19, 2011; and $249,975,000 original principal amount
of 11.0% notes due June 19, 2012.

The Notes permit payment of interest in cash or additional
notes. The Notes may be redeemed in whole or in part prior to
maturity at the option of the issuer of the Notes. Redemption is
at par plus accrued interest. The Notes contain certain
covenants that govern the issuers ability to make
restricted payments and enter into certain affiliate
transactions. The Notes also provide for the making of mandatory
offers to repurchase upon certain change of control events
involving the purchaser of the divested trading and
merchandising operations, their co-investors, or their
affiliates. During the fourth quarter of fiscal 2010, we
received $115 million as payment in full of all principal
and interest due on the first tranche of Notes from the
purchaser, in advance of the scheduled June 19, 2010
maturity date. In the third quarter of fiscal 2009, we received
a cash interest payment on the Notes of $30 million from
the purchaser. With the exception of these cash receipts, all
interest payments have been made in-kind. The remaining Notes
due June 19, 2011 and June 19, 2012, which are
classified as other assets, had a carrying value of
$490 million at May 30, 2010.

Based on market interest rates of comparable instruments
provided by investment bankers, we estimated the fair market
value of the remaining Notes was $514 million at
May 30, 2010.

5.

GARNER,
NORTH CAROLINA ACCIDENT

On June 9, 2009, an accidental explosion occurred at our
manufacturing facility in Garner, North Carolina. This facility
was the primary production facility for our Slim
Jim®
branded meat snacks. On June 13, 2009, the U.S. Bureau
of Alcohol, Tobacco, Firearms and Explosives announced its
determination that the explosion was the result of an accidental
natural gas release, and not a deliberate act.

We maintain comprehensive property (including business
interruption), workers compensation, and general liability
insurance policies with very significant loss limits that we
believe will provide substantial and broad coverage for the
anticipated losses arising from this accident.

47

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

The costs incurred and insurance recoveries recognized, to date,
are reflected in our consolidated financial statements, as
follows:

Fiscal Year Ended May 30, 2010

Consumer

(in millions)

Foods

Corporate

Total

Cost of goods sold:

Inventory write-downs and other costs

$

11.9

$



$

11.9

Selling, general and administrative expenses:

Fixed asset impairments,
clean-up
costs, etc.

$

47.5

$

2.6

$

50.1

Insurance recoveries recognized

(58.1

)



(58.1

)

Total selling, general and administrative expenses

$

(10.6

)

$

2.6

$

(8.0

)

Net loss

$

1.3

$

2.6

$

3.9

The amounts in the table, above, exclude lost profits due to the
interruption of the business, as well as any related business
interruption insurance recoveries.

Through May 30, 2010, we had received payment advances from
the insurers of approximately $85.0 million for our initial
insurance claims for this matter, $58.1 million of which
has been recognized as a reduction to selling, general and
administrative expenses. We anticipate final settlement of the
claim will occur in fiscal 2011. Based on managements
current assessment of production options, the expected level of
insurance proceeds, and the estimated potential amount of losses
and impact on the Slim
Jim®
brand, we do not believe that the accident will have a material
adverse effect on our results of operations, financial
condition, or liquidity.

In the fourth quarter of fiscal 2010, we determined that certain
additional equipment located in the facility, with a book value
of approximately $12 million, was impaired (included in the
table above). We expect to be reimbursed by our insurers for the
cost of replacing these assets, and we have recognized a
$12 million insurance recovery in fiscal 2010 (included in
the table above), representing the carrying value of these
destroyed assets.

6.

RESTRUCTURING
ACTIVITIES

2010
Restructuring Plan

During the fourth quarter of fiscal 2010, our board of directors
approved a plan recommended by executive management related to
the long-term production of our meat snack products. The plan
provides for the closure of our meat snacks production facility
in Garner, North Carolina, and the movement of production to our
existing facility in Troy, Ohio. Since the accident at Garner,
in June 2009, the Troy facility has been producing a portion of
our meat snack products. Upon completion of the plans
implementation, which is expected to be in the second quarter of
fiscal 2012, the Troy facility will be our primary meat snacks
production facility. The plan is expected to result in the
termination of approximately 500 employee positions in
Garner and the creation of approximately 200 employee
positions in Troy.

In May 2010, we made a decision to move certain administrative
functions from Edina, Minnesota, to Naperville, Illinois. We
expect to complete the transition of these functions in the
first half of fiscal 2011. This plan, together with the plan to
move production of our meat snacks from Garner, North Carolina
to Troy, Ohio, are collectively referred to as the 2010
restructuring plan (2010 plan).

In connection with the 2010 plan, we expect to incur pre-tax
cash and non-cash charges for asset impairments, accelerated
depreciation, severance, relocation, and site closure costs
estimated to be approximately $67.5 million, of which
$39.2 million was recognized in fiscal 2010. We have
recorded expenses associated with this restructuring

48

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

plan, including but not limited to, impairments of property,
plant and equipment, accelerated depreciation, severance and
related costs, and plan implementation costs (e.g., consulting,
employee relocation, etc.). We anticipate that we will recognize
the following pre-tax expenses associated with the 2010 plan in
the fiscal 2010 to 2012 timeframe (amounts include charges
recognized in fiscal 2010):

Consumer

Foods

Corporate

Total

Accelerated depreciation

$

20.6

$



$

20.6

Total cost of goods sold

20.6



20.6

Asset impairment

16.5



16.5

Severance and related costs

16.2



16.2

Other, net

10.7

3.5

14.2

Total selling, general and administrative expenses

43.4

3.5

46.9

Consolidated total

$

64.0

$

3.5

$

67.5

Included in the above estimates are $25.5 million of
charges which have resulted or will result in cash outflows and
$42.0 million of non-cash charges.

During fiscal 2010, the Company recognized the following pre-tax
charges in its consolidated statement of earnings for the fiscal
2010 plan:

Consumer

Foods

Corporate

Total

Accelerated depreciation

$

3.4

$



$

3.4

Total cost of goods sold

3.4



3.4

Asset impairment

16.5



16.5

Severance and related costs

14.2



14.2

Other, net

1.6

3.5

5.1

Total selling, general and administrative expenses

32.3

3.5

35.8

Consolidated total

$

35.7

$

3.5

$

39.2

We also recognized income tax expense of $1.2 million
related to tax credits we will no longer be able to realize
related to the 2010 plan.

Liabilities recorded for the various initiatives and changes
therein for fiscal 2010 under the 2010 plan were as follows:

Balance at

Costs Incurred

Balance at

May 31,

and Charged

Costs Paid

Changes in

May 30,

2009

to Expense

or Otherwise Settled

Estimates

2010

Severance and related costs

$



$

14.2

$



$



$

14.2

Plan implementation costs



1.1

(0.1

)



1.0

Other costs



3.5





3.5

Total

$



$

18.8

$

(0.1

)

$



$

18.7

49

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

2008-2009
Restructuring Plan

During fiscal 2008, our board of directors approved a plan
(2008-2009
plan) recommended by executive management to improve the
efficiency of our Consumer Foods operations and related
functional organizations and to streamline our international
operations to reduce our manufacturing and selling, general, and
administrative costs. This plan includes the reorganization of
the Consumer Foods operations, the integration of the
international headquarters functions into our domestic business,
and exiting a number of international markets. These plans were
substantially completed by the end of fiscal 2009. The total
cost of the
2008-2009
plan was $36.3 million, of which $8.5 million was
recorded in fiscal 2009 and $27.8 million was recorded in
fiscal 2008. We have recorded expenses associated with the
2008-2009
plan, including but not limited to, inventory write-downs,
severance and related costs, and plan implementation costs
(e.g., consulting, employee relocation, etc.).

During fiscal 2009, we recognized the following pre-tax charges
in our consolidated statement of earnings for the
2008-2009
plan:

Consumer

Foods

Corporate

Total

Severance and related costs

$

(0.4

)

$

0.4

$



Contract termination

(1.3

)



(1.3

)

Plan implementation costs

1.9

1.5

3.4

Other, net

6.4



6.4

Total selling, general and administrative expenses

6.6

1.9

8.5

Consolidated total

$

6.6

$

1.9

$

8.5

We recognized the following cumulative (plan inception to
May 31, 2009) pre-tax charges related to the
2008-2009
plan in our consolidated statements of earnings:

Consumer

Foods

Corporate

Total

Inventory write-downs

$

2.4

$



$

2.4

Total cost of goods sold

2.4



2.4

Asset impairment

0.8



0.8

Severance and related costs

16.4

3.5

19.9

Contract termination

1.0



1.0

Plan implementation costs

2.2

2.8

5.0

Goodwill/brand impairment

0.2



0.2

Other, net

7.0



7.0

Total selling, general and administrative expenses

27.6

6.3

33.9

Consolidated total

$

30.0

$

6.3

$

36.3

Included in the above amounts are $26.4 million of charges
which have resulted in cash outflows and $9.9 million of
non-cash charges.

No material liabilities remain in connection with the
2008-2009
plan at May 30, 2010.

50

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

2006-2008
Restructuring Plan

In February 2006, our board of directors approved a plan
recommended by executive management to simplify our operating
structure and reduce our manufacturing and selling, general, and
administrative costs
(2006-2008
plan). The plan included supply chain rationalization
initiatives, the relocation of a divisional headquarters from
Irvine, California to Naperville, Illinois, the centralization
of shared services, salaried headcount reductions, and other
cost-reduction initiatives. The plan was completed during fiscal
2009. No material expenses were recognized in fiscal 2009 or
2008 in connection with this plan.

As part of the
2006-2008
restructuring plan, we began construction of a new production
facility in fiscal 2007. We determined that we will divest this
facility. Accordingly, in the fourth quarter of fiscal 2010, we
recognized an impairment charge of $33.3 million to
write-down the asset to its expected sales value. This charge is
reflected in selling, general and administrative expenses within
the Consumer Foods segment.

7.

VARIABLE
INTEREST ENTITIES

As discussed in Note 3, in September 2008, we entered into
a potato processing venture, Lamb Weston BSW. We provide all
sales and marketing services to the venture. Commencing on
June 1, 2018, or on an earlier date under certain
circumstances, we have a contractual right to purchase the
remaining equity interest in Lamb Weston BSW from Ochoa (the
call option). Commencing on July 30, 2011, or
on an earlier date under certain circumstances, we are subject
to a contractual obligation to purchase all of Ochoas
equity investment in Lamb Weston BSW at the option of Ochoa (the
put option). The purchase prices under the call
option and the put option (the options) are based on
the book value of Ochoas equity interest at the date of
exercise, as modified by an
agreed-upon
rate of return for the holding period of the investment balance.
The
agreed-upon
rate of return varies depending on the circumstances under which
any of the options are exercised. We have determined that the
venture is a variable interest entity and that we are the
primary beneficiary of the entity. Accordingly, we consolidate
the financial statements of the venture.

In the first quarter of fiscal 2010, we established a line of
credit with Lamb Weston BSW, under which we will lend up to
$1.5 million to Lamb Weston BSW, due on August 24,
2010. Borrowings under the line of credit, which are subordinate
to Lamb Weston BSWs borrowings from a syndicate of banks,
bear interest at a rate of LIBOR plus 3%.

Our variable interests in this venture include an equity
investment in the venture, the options, and the line of credit
advanced to Lamb Weston BSW. Other than our equity investment in
the venture, the line of credit extended to the venture, and our
sales and marketing services provided to the venture, we have
not provided financial support to this entity. Our maximum
exposure to loss as a result of our involvement with this
venture is equal to our equity investment in the venture and
advances under the line of credit extended to the venture.

We also consolidate the assets and liabilities of several
entities from which we lease corporate aircraft. Each of these
entities has been determined to be a variable interest entity
and we have been determined to be the primary beneficiary of
each of these entities. Under the terms of the aircraft leases,
we provide guarantees to the owners of these entities of a
minimum residual value of the aircraft at the end of the lease
term. We also have fixed price purchase options on the aircraft
leased from these entities. Our maximum exposure to loss from
our involvement with these entities is limited to the difference
between the fair value of the leased aircraft and the amount of
the residual value guarantees at the time we terminate the
leases (the leases expire between December 2011 and October
2012). The total amount of the residual value guarantees for
these aircraft at the end of the respective lease terms is
$38.4 million.

51

NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Fiscal
years ended May 30, 2010, May 31, 2009, and
May 25, 2008

Columnar
Amounts in Millions Except Per Share Amounts

Due to the consolidation of these variable interest entities, we
reflected in our balance sheets:

May 30,

May 31,

2010

2009

Cash

$



$

1.2

Receivables, net

16.9

12.6

Inventories

1.4

3.1

Prepaid expenses and other current assets

0.3

0.1

Property, plant and equipment, net

96.5

100.5

Goodwill

18.8

18.6

Brands, trademarks and other intangibles, net

9.8

10.6

Total assets

$

143.7

$

146.7

Current installments of long-term debt

$

6.4

$

6.1

Accounts payable

12.2

4.3

Accrued payroll

0.3

0.2

Other accrued liabilities

0.7

0.7

Senior long-term debt, excluding current installments

76.8

83.3

Other noncurrent liabilities (minority interest)

24.8

27.3

Total liabilities

$

121.2

$

121.9

The liabilities recognized as a result of consolidating the Lamb
Weston BSW entity do not represent additional claims on our
general assets. The creditors of Lamb Weston BSW have claims
only on the assets of the specific variable interest entity to
which they have advanced credit. The assets recognized as a
result of consolidating Lamb Weston BSW are the property of the
venture and are not available to us for any other purpose.

8.

GOODWILL
AND OTHER IDENTIFIABLE INTANGIBLE ASSETS

The change in the carrying amount of goodwill for fiscal 2010
and 2009 was as follows: